Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

Question

Quizplus · Accepted Answer

Negative consumption externalities such as pollution or secondhand smoke create additional costs for individuals who are not involved in the transaction or decision to consume the good. The private market only takes into account the private costs and benefits to the individual making the decision, leading to a larger quantity of consumption than is socially optimal. Therefore, in order to account for the external costs, a socially optimal quantity will be lower than the private market quantity.

Negative Consumption Externalities Will Have a Socially Optimal Quantity That