If the production of a good generates a negative externality, then at the market equilibrium quantity, the marginal cost to society of another unit of the good will be:
A)less than the marginal benefit of another unit.
B)greater than the marginal benefit of another unit.
C)equal to the marginal benefit of another unit.
D)negative due to the external cost.

Question

Quizplus · Accepted Answer

Firms do not consider negative externalities when making their production decisions. Thus, at the market equilibrium quantity, the marginal cost to society of another unit will be greater than its marginal benefit.

If the Production of a Good Generates a Negative Externality