A negative externality results in
A)underproduction.
B)zero production.
C)overproduction.
D)efficient production.
E)zero deadweight loss.

Question

Quizplus · Accepted Answer

A negative externality exists when the social cost of a good or service exceeds its private cost, meaning that the costs are imposed on third parties who are not involved in the transaction. In this case, the market will produce too much of the good or service because the producer does not bear the full cost of production, resulting in overproduction. The equilibrium quantity will be greater than the socially optimal level, leading to a deadweight loss.

A Negative Externality Results in