In a market where there are external or negative externalities associated with consumption and production, the equilibrium will not be efficient because:
A)price will be greater than MC.
B)firms will shut down until costs are reduced.
C)costs of production will, on average, be too high.
D)too many resources will be allocated to production of the good.

Question

Quizplus · Accepted Answer

In a market with negative externalities, the cost to society of producing the good is higher than the cost borne by the producer. As a result, too many resources will be allocated to the production of the good because the marginal social cost is higher than the marginal private cost. Therefore, the equilibrium will not be efficient as there is too much production and consumption of the good.

In a Market Where There Are External or Negative Externalities