In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because
A)too few resources will be allocated toward producing the good.
B)firms will shut down until costs are reduced.
C)costs of production will, on average, be too high.
D)too many resources will be allocated toward producing the good.

Question

Quizplus · Accepted Answer

Negative externalities in consumption and production mean that not all costs are accounted for in the market price. This leads to overproduction and overconsumption, as the market does not internalize the external costs, resulting in too many resources being allocated toward producing the good.

In a Market Where Negative Externalities Are Associated with Consumption