Private markets fail to reach a socially optimal level when negative consumption externalities are present because:
A)social costs equal private costs at the private market solution
B)private value exceeds social value at the private market solution
C)private value exceeds social costs at the private market solution
D)consumption externalities lead to production externalities

Question

Quizplus · Accepted Answer

When negative consumption externalities are present, the private value (the value to the individual consumer) exceeds the social value (the value to society as a whole, including any external costs). This discrepancy means that more of the good is consumed than is socially optimal, leading to a failure to reach a socially optimal level in the private market.

Private Markets Fail to Reach a Socially Optimal Level When