When a good generates a negative externality in the market:

Question

Quizplus · Accepted Answer

When a good generates a negative externality, such as pollution, the marginal social cost (which includes both the private costs and the external costs) is greater than the marginal private cost (the cost borne by the producer or consumer). This discrepancy leads to overproduction or overconsumption of the good from a societal perspective, as the external costs are not reflected in the market price.

When a Good Generates a Negative Externality in the Market