If negative externalities exist,then in a market with no property rights, A)MSC = MSB. B)MSC MSB. D)MSC = marginal external cost. E)MC MSC.

Question

If negative externalities exist,then in a market with no property rights,
A)MSC = MSB.
B)MSC < MSB.
C)MSC > MSB.
D)MSC = marginal external cost.
E)MC > MSC.

Quizplus · Accepted Answer

When negative externalities exist, the marginal social cost (MSC) of production is greater than the marginal private cost because it includes both the private costs and the external costs not accounted for by the market. This leads to overproduction and inefficiency, as the true cost to society is higher than what is considered in the market transactions.

If Negative Externalities Exist,then in a Market with No Property