-What would happen in a free market system when production of a good generates negative externalities?
A) There is a shortage of the good.
B) There is a surplus of the good.
C) The equilibrium quantity of the good is less than the efficient amount.
D) The equilibrium quantity of the good is more than the efficient amount.

Question

-What would happen in a free market system when production of a good generates negative externalities?
A) There is a shortage of the good. 
B) There is a surplus of the good. 
C) The equilibrium quantity of the good is less than the efficient amount. 
D) The equilibrium quantity of the good is more than the efficient amount.

Quizplus · Accepted Answer

In a free market system, when the production of a good generates negative externalities (such as pollution), the cost of these externalities is not reflected in the market price of the good. This leads to overproduction and overconsumption of the good, as the market does not account for the external costs. Therefore, the equilibrium quantity of the good is more than the efficient amount, where the efficient amount would internalize the external costs and reduce production to a level that reflects the true cost to society.

-What Would Happen in a Free Market System When Production