If an activity creates negative externalities:
A) less of the activity is performed than is in the best interest of society.
B) the marginal social cost of the activity has to be less than its private marginal cost.
C) imposing taxes and other restraints on the activity's producers could be an appropriate policy to induce them to reduce the externalities.
D) the level of the activity that maximizes society's net benefit is greater than the level that maximizes the net benefit of the individuals performing the activity.

Question

Quizplus · Accepted Answer

Negative externalities mean that the activity has additional costs to society that are not borne by the producers or consumers of the activity. Imposing taxes or other restraints can help internalize these external costs, making the producers or consumers bear more of the true cost of the activity, thereby potentially reducing the negative externalities.

If an Activity Creates Negative Externalities