The optimal quantity of a negative externality is zero if
A) it kills many people.
B) it kills a few people and injures many.
C) it injures everyone.
D) the marginal cost of reducing it is zero.
E) it involves pollution or consumer safety.

Question

Quizplus · Accepted Answer

When the marginal cost of reducing a negative externality is zero, it is optimal to reduce it completely to zero. This is because any positive level of the externality creates a cost that is greater than zero but can be eliminated at no cost. In other cases, such as when the externality involves pollution or consumer safety, there may be costs associated with reducing the externality to zero, so the optimal quantity may be less than zero.

The Optimal Quantity of a Negative Externality Is Zero If