If a negative externality exists for sales of gasoline in a competitive market, more than the efficient amount of gasoline will be sold per year.

Question

Quizplus · Accepted Answer

When a negative externality exists, such as pollution from gasoline consumption, the market price of gasoline does not reflect the full social cost. As a result, consumers are more likely to purchase gasoline than they would if the social cost was fully reflected in the price. This leads to a quantity of gasoline consumed that is greater than the efficient amount.

If a Negative Externality Exists for Sales of Gasoline in a Competitive