When the market produces output where the marginal social cost of production exceeds the marginal private cost to the firm,it must be the case that the production of the good involves
A) negative production externalities.
B) negative consumption externalities.
C) positive production externalities.
D) positive consumption externalities.
E) both negative production and consumption externalities.

Question

Quizplus · Accepted Answer

When the marginal social cost of production exceeds the marginal private cost to the firm, it means that the production of the good imposes costs on society beyond what the firm is experiencing. This is known as a negative production externality, where the cost of producing the good spills over to affect third parties negatively.

When the Market Produces Output Where the Marginal Social Cost