When negative externalities are present in a market,it implies that
A) the market price is too low to achieve optimum social surplus.
B) the market price is too high to achieve optimum social surplus.
C) the market price is just right to achieve optimum social surplus.
D) the market price should be lowered further to achieve optimum social surplus.
E) production should be increased to achieve optimum social surplus.

Question

Quizplus · Accepted Answer

Negative externalities mean that the cost to society of producing or consuming a good is higher than the cost to the individual producing or consuming it. This means that the market price is too low to account for the full social cost and achieve optimum social surplus. Therefore, choice A is correct. B, C, D, and E are incorrect because they either assume the market price is too high or that increasing production is the solution, which does not address the negative externality.

When Negative Externalities Are Present in a Market,it Implies That