Imperfect Information Causes Overconsumption

Steps:

• Identify overconsumption as when quantity demanded exceeds socially optimal level.
• Recognize market failures arise from externalities, public goods, or information issues.
• Link imperfect information to consumers ignoring hidden costs or benefits.
• Conclude that poor information leads to excessive private consumption without full social accounting.

Why D is correct:

• Imperfect information violates the efficient market hypothesis, where full knowledge ensures optimal allocation; without it, consumers overconsume by underestimating true costs (e.g., health risks of junk food).

Why the others are wrong:

• A: Surplus comparison doesn't cause overconsumption; it reflects market efficiency, not quantity issues.
• B: Undervaluing benefits would cause underconsumption, not overconsumption.
• C: Excess supply leads to lower prices and potentially more consumption, but it's a symptom, not the root cause of overconsumption.

Final answer: D