When a negative externality exists in a market,total surplus:
A) is decreased by deadweight loss compared to that same market without a negative externality.
B) is the same as a market without a negative externality.
C) is increased by deadweight gain compared to that same market without a negative externality.
D) is the same but re-distributed differently than if that same market did not have a negative externality.

Question

Quizplus · Accepted Answer

A negative externality creates a situation where the market does not reach an efficient outcome that maximizes total surplus. As a result, the presence of a negative externality leads to a decrease in total surplus through deadweight loss compared to a market without the externality.

When a Negative Externality Exists in a Market,total Surplus