A negative externality is said to exist if:
A)the private marginal cost exceeds the private marginal benefit.
B)the producer and the consumer surplus for a particular good are not equal.
C)a tax imposed on the production of a particular good results in a deadweight loss.
D)the social costs exceed the private costs.

Question

Quizplus · Accepted Answer

A negative externality occurs when the social costs of producing a good exceed the private costs incurred by the producer. This means that the production of the good has negative effects on third parties who are not involved in the transaction, leading to a divergence between private costs and social costs. For example, pollution from a factory imposes costs on surrounding residents and their environment, which are not reflected in the private costs of the producer. This leads to an overproduction of the good, causing a market failure where the efficient level of output is not achieved.

A Negative Externality Is Said to Exist If