When a negative externality exists, the marginal social cost of annual output sold in a competitive market will exceed the marginal social benefit of that output in equilibrium.

Question

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A negative externality leads to a difference between the private cost to producers and the social cost to society. As a result, the equilibrium quantity of output in a competitive market will exceed the socially optimal level, leading to a situation where the marginal social cost of production (private cost plus external cost) exceeds the marginal social benefit (private benefit plus external benefit) of consumption.

When a Negative Externality Exists, the Marginal Social Cost of Annual