If there is a negative externality, and the market output is 100 units more than the socially optimal output, then it follows that
A)the external costs associated with the negative externality are greater than the marginal private costs.
B)the external costs associated with the negative externality are less than the marginal private costs.
C)there is market failure.
D)any tax imposed on the production of the output will bring about the socially optimal output.
E)none of the above

Question

Quizplus · Accepted Answer

A negative externality leads to market failure because the market produces more than the socially optimal output, as it does not account for the external costs.

If There Is a Negative Externality, and the Market Output