If a negative externality exists in the market for dirt bikes and that market is perfectly competitive:
A) less than the efficient output of dirt bikes will be produced.
B) the price of dirt bikes exceeds the marginal social cost.
C) the price of dirt bikes equals the marginal social cost.
D) the price of dirt bikes is less than the marginal social cost.

Question

Quizplus · Accepted Answer

In the presence of a negative externality, the social cost is higher than the private cost. In a perfectly competitive market, firms only consider private costs, leading to overproduction and a price lower than the marginal social cost.

If a Negative Externality Exists in the Market for Dirt