In the presence of a negative externality generated by producing a good,a competitive market will produce more of that good than is socially optimal.

Question

Quizplus · Accepted Answer

Firms in that market only consider their private costs and produce a quantity that equates price with the private marginal cost.Producers ignore the external costs to others.As a result,p = MC^p instead of p = MC^s.

In the Presence of a Negative Externality Generated by Producing