When a negative externality exists,
A)external costs are necessarily greater than private costs.
B)social costs equal private costs.
C)social costs are less than private costs.
D)social costs are greater than private costs.

Question

Quizplus · Accepted Answer

When a negative externality exists, there is a divergence between social costs and private costs. The private costs reflect only the direct costs incurred by the producer or consumer, while social costs include the external costs imposed on society as a whole. Since negative externalities generate spillover costs, such as pollution or traffic congestion, the social costs are greater than the private costs. Therefore, the best choice is D.

When a Negative Externality Exists