If a negative externality exists,__________ for the socially optimal output to be reached.

Question

Quizplus · Accepted Answer

In the presence of a negative externality, the marginal cost of production is lower than the social cost. As a result, the market output level is greater than the socially optimal level. To reach the socially optimal output, the supply needs to be reduced, which can be achieved through government intervention such as taxes or regulations. Therefore, the best choice is B, supply needs to decrease.

If a Negative Externality Exists,__________ for the Socially Optimal Output