In a competitive market,a negative externality creates a deadweight loss because
A) the cost of the externality is double counted.
B) a harm is generated.
C) price equals social marginal cost.
D) price equals private marginal cost.

Question

Quizplus · Accepted Answer

A negative externality creates a deadweight loss because the price equals the private marginal cost, not the social marginal cost, leading to overproduction and inefficiency.

In a Competitive Market,a Negative Externality Creates a Deadweight Loss