The presence of negative externalities in the production of a good leads to a misallocation of societal resources because:
A)people can enjoy the benefits of the good without paying for it, thereby reducing the profit margin of producers.
B)too little of the good than is ideal for society is produced.
C)there are some costs associated with production that the producer fails to take into consideration.
D)the government always intervenes in markets when negative externalities are present, resulting in inefficiency.
E)too low a price is charged by the producers of the good, thereby reducing the profit margin of the producers.

Question

Quizplus · Accepted Answer

Negative externalities occur when the production or consumption of a good or service imposes costs on third parties that are not reflected in the market prices. This means that not all costs of production are considered by the producer, leading to a potential overproduction of the good and a misallocation of resources.

The Presence of Negative Externalities in the Production of a Good