The economically efficient level of an externality is zero.

Question

Quizplus · Accepted Answer

The economically efficient level of an externality is not necessarily zero, but rather at a level where the marginal social cost of the externality equals the marginal social benefit. This recognizes that completely eliminating an externality may be more costly than the benefits gained from reducing it to zero, and some level of externality may be acceptable or unavoidable for certain economic activities.

The Economically Efficient Level of an Externality Is Zero