Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at
A)less than the social cost of producing it.
B)less than the private cost of producing it.
C)more than the social cost of producing it.
D)more than the private cost of producing it.

Question

Quizplus · Accepted Answer

In a market equilibrium with negative externality, the social cost of producing the good is higher than the private cost. This means that the marginal consumer values the good less than the social cost of producing it, as the negative externality imposes a cost on society that is not reflected in the market price. So, option A is the correct choice.

Assume the Production of a Good Causes a Negative Externality