When is an externality present?
A) when the private marginal cost of an activity exceeds the private marginal benefit
B) when the social marginal cost of an activity exceeds the private marginal cost
C) when the social marginal cost of an activity exceeds the social marginal benefit
D) when the social marginal benefit of an activity is less than the private marginal benefit

Question

Quizplus · Accepted Answer

An externality is present when the social marginal cost of an activity exceeds the private marginal cost, indicating that there are additional costs (or benefits) to society not accounted for by the private individuals or firms undertaking the activity.

When Is an Externality Present