Markets are often inefficient when negative production externalities are present because:
A)private costs exceed social costs at the private market solution
B)externalities can never be corrected without government regulation
C)social costs exceed private costs at the private market solution
D)production externalities lead to consumption externalities

Question

Quizplus · Accepted Answer

In the presence of negative production externalities, social costs exceed private costs at the private market solution because the price of the good/service does not consider the negative impact it has on society. This leads to an inefficient allocation of resources as the price signal does not fully reflect the true cost of the good/service from society's perspective.

Markets Are Often Inefficient When Negative Production Externalities Are Present