If a negative externality prevails in a competitive market for air travel, then:

Question

Quizplus · Accepted Answer

In a competitive market, producers only consider their private costs while making production decisions. In the case of air travel, if there is a negative externality (such as pollution), the marginal social cost of air travel will be greater than the marginal private cost. This means that the efficient amount of air travel is less than the amount that will be produced in the market equilibrium. Therefore, (a) is correct. Additionally, in the market equilibrium, the marginal social cost of air travel will be greater than its marginal social benefit, leading to a welfare loss to society. Therefore, (c) is also correct.

If a Negative Externality Prevails in a Competitive Market for Air