Suppose that there is a negative externality associated with
Alcohol consumption in the United States.What does this
Negative consumption externality imply about the relationship
Between the demand curve for alcohol and the social marginal
Benefit (SMB) curve for alcohol?
A)The demand curve and the SMB curve for alcohol are identical.
B)The demand curve lies below the SMB curve for alcohol.
C)The demand curve lies above the SMB curve for alcohol.
D)The demand curve intersects the SMB curve at the market equilibrium price.

Question

Quizplus · Accepted Answer

A negative externality implies that the private demand curve (reflecting private marginal benefit) lies above the social marginal benefit curve, as the social costs are not fully accounted for in the private demand.

Suppose That There Is a Negative Externality Associated with