If negative externalities are created in the production of a good, what will society do?
A) It will produce too much of the good, since the marginal private cost to firms is greater than the marginal social cost.
B) It will produce too little of the good, since the marginal private cost to firms is less than the marginal social cost.
C) It will produce too much of the good, since the marginal private cost to firms is less than the marginal social cost.
D) It will produce too little of the good, since the marginal private cost to firms is greater than the marginal social cost.

Question

Quizplus · Accepted Answer

When negative externalities are present in the production of a good, the marginal private cost to firms is less than the marginal social cost because the external costs are not borne by the firms. This leads to overproduction of the good from society's perspective.

If Negative Externalities Are Created in the Production of a Good