Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?
A) They are equal.
B) The equilibrium quantity is greater than the socially optimal quantity.
C) The equilibrium quantity is less than the socially optimal quantity.
D) There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

A negative externality means that the social cost of production is higher than the private cost. Therefore, the equilibrium quantity, determined by private costs, is greater than the socially optimal quantity, which considers the external costs.

Suppose That Meat Producers Create a Negative Externality