If the production of a good involves negative externalities,________.
A) the quantity of the good supplied in the market is lower than the efficient level
B) the optimal price of the good is higher than the market price of the good
C) total welfare can be increased by increasing the production of the good
D) the average cost of production can be reduced by increasing output above the optimal level

Question

Quizplus · Accepted Answer

Negative externalities in the production of a good mean that the true social cost of producing the good is higher than the private cost borne by the producer. As a result, the optimal price, which should reflect the true social cost, is higher than the market price, which typically reflects only the private cost.

If the Production of a Good Involves Negative Externalities,________