The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good. FIGURE 17- 1
-Refer to Figure 17- 1. A negative externality is depicted because the

Question

The figure below shows the marginal benefit to consumers, MB, the marginal cost to private firms, MCp, and the marginal cost to society, MCs, at each level of output of some good.  FIGURE 17- 1
-Refer to Figure 17- 1. A negative externality is depicted because the

Quizplus · Accepted Answer

A negative externality exists when the marginal social cost (MCs) is greater than the marginal private cost (MCp). This is because the cost to society is greater than the cost to the private firm producing the good, indicating that there are additional costs imposed on third parties or the environment. In this scenario, the optimal level of output occurs where the marginal social benefit (MB) intersects with the marginal social cost (MCs), which is lower than the level of output where the marginal private benefit (MPB) intersects with the marginal private cost (MCp).

The Figure Below Shows the Marginal Benefit to Consumers, MB