If there are costly negative externalities associated with an economic activity and that activity is carried out until the (private)marginal benefit equals the (private)marginal cost,then ________.
A) this activity should be subsidized
B) the social marginal net benefit is positive
C) the private cost exceeds social costs
D) too many resources are being allocated to this activity

Question

Quizplus · Accepted Answer

When costly negative externalities are present, the social cost of an activity exceeds the private cost. If an activity is pursued until its private marginal benefit equals its private marginal cost, it does not account for the external costs imposed on society. Therefore, too many resources are being allocated to this activity, as the full social costs are not considered, leading to overproduction or overconsumption from a societal perspective.

If There Are Costly Negative Externalities Associated with an Economic