When a producer does not internalize the negative externality associated with the production of a good,then:
A)the socially optimal quantity of output must be larger than the market output.
B)the socially optimal quantity of output must be less than the market output.
C)the socially optimal quantity of output must be equal to the market output.
D)the socially optimal quantity of output can be either larger or smaller than the market output.

Question

Quizplus · Accepted Answer

When a producer does not internalize the negative externality associated with the production of a good, the cost to society is greater than the cost to the producer. This means that the market will produce more than the socially optimal quantity. Therefore, the socially optimal quantity of output must be less than the market output.

When a Producer Does Not Internalize the Negative Externality Associated