If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the:
A)price of coal will be higher than the socially optimal price.
B)quantity of coal produced will be less than the socially optimal quantity.
C)quantity of coal produced will be greater than the socially optimal quantity.
D)supply curve will lie to the left of the regulated supply curve.

Question

Quizplus · Accepted Answer

Firms do not consider external costs when making their output decisions, so if a good generates a negative externality, they will produce more than the socially optimal quantity at the market equilibrium.

If Coal Mining Produces a Negative Externality Because It Leads