A negative externality or spillover cost occurs when
A) ﬁrms fail to achieve allocative eﬃciency.
B) ﬁrms fail to achieve productive eﬃciency.
C) the price of a good exceeds the marginal cost of producing it.
D) the total cost of producing a good exceeds the costs borne by the producer.

Question

Quizplus · Accepted Answer

A negative externality occurs when the production or consumption of a good or service imposes costs on third parties that are not reflected in the market price, meaning the total cost of producing the good exceeds the costs borne by the producer. This can lead to overproduction and inefficiencies in the market.

A Negative Externality or Spillover Cost Occurs When