Why do negative externalities like pollution result in inefficiency?
A) Because producers artificially restrict their supply.
B) Because producers ignore the external costs they impose on third-parties.
C) Because producers manufacture more goods than people can afford to buy.
D) Because producers will receive an unequal distribution of profits.

Question

Quizplus · Accepted Answer

Negative externalities like pollution result in inefficiency because producers ignore the external costs they impose on third-parties. This leads to overproduction and overconsumption of the goods in question, as the market price fails to reflect the true social cost of production. As a result, resources are allocated inefficiently, and society as a whole suffers from the negative consequences of pollution.

Why Do Negative Externalities Like Pollution Result in Inefficiency