If a negative externality is associated with the sale of wood stoves, then the marginal private cost of those stoves is less than their marginal social cost.

Question

Quizplus · Accepted Answer

A negative externality means that there are costs associated with the production or consumption of a good that are borne by society as a whole, rather than just by the buyer and seller. In the case of wood stoves, these costs could include the pollution caused by burning wood, which harms the environment and public health. Since the marginal private cost only reflects the cost to the individual buyer and seller, it would be less than the marginal social cost, which includes the external costs to society. Therefore, the statement is true.

If a Negative Externality Is Associated with the Sale of Wood