Consider a market where production of a good generates a negative externality.In the market equilibrium,

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In a market with a negative externality, the market equilibrium results in too much of the good being produced relative to the socially optimal level. This is because the market only considers the private costs and benefits of production, while ignoring the external costs imposed on third parties. As a result, producers are incentivized to produce more than the socially optimal level, resulting in a deadweight loss and negative impact on society as a whole.

Consider a Market Where Production of a Good Generates a Negative