Negative externalities lead markets to produce
A)greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
B)smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.
C)greater than efficient output levels and positive externalities lead markets to produce efficient output levels.
D)efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question

Quizplus · Accepted Answer

Negative externalities (e.g., pollution) cause markets to produce more than is socially optimal because not all costs are internalized. Positive externalities (e.g., education) lead to less production than is socially optimal because not all benefits are captured by the producer.

Negative Externalities Lead Markets to Produce