When spillovers cause substantial positive benefits to accrue to third parties, a competitive market: A

The correct answer is B.overallocates resources to the production of the good.

A spillover suggests that an impact occurred from what would seem to be unrelated events but results in consequences to an indirect party (i.e., individuals or groups that did not engage directly in the event).

The spillover effect is an example of a market failure where external costs create positive or negative externalities. Externalities are the costs or benefits endured or enjoyed by a party who did not directly engage in the transaction that enabled the cost or benefit. A positive externality occurs when the production of a good enables consumption by a third party without that party having to engage directly in the transaction.

In other words, the benefits were enjoyed without having to be purchased meaning the cost was borne elsewhere and by those engaging directly in the transaction. This result suggests that resources were not allocated efficiently (C) and did not result in compensation to the producer (D). A positive externality suggests the condition of overallocation and not the under-allocation of resources (A) where a negative externality would have likely occurred.

Answer A, C, and D are incorrect.