When the production of a good creates external costs,

Question

Quizplus · Accepted Answer

External costs refer to the costs that are borne by society as a whole instead of the producer or consumer of a good. These costs can include pollution, resource depletion, and other negative impacts on the environment and public health. When a good's production creates external costs, society's collective well-being will be lower as it must bear the costs of these negative impacts. The producer may still earn profits despite these external costs, but the overall societal impact will be negative. The other choices are incorrect because lower profits or production levels do not necessarily guarantee a reduction in external costs, and environmental pollution may actually increase in the case of external costs.

When the Production of a Good Creates External Costs