A negative production externality results in:
A)A DWL in the market equilibrium because there is too much output relative to the efficient level of production.
B)A DWL in the market equilibrium because output is too low in the market equilibrium relative to the socially efficient level of output.
C)No DWL loss in the market equilibrium as all costs and benefits are captured in the actions of market participants.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

A negative production externality, such as pollution from a factory, means that not all costs of production are borne by the producer. This leads to overproduction relative to the socially efficient level, as the market price does not reflect the true cost to society, resulting in a deadweight loss (DWL).

A Negative Production Externality Results In