Suppose the production of a good results in negative externalities. If society produces the output consistent with the intersection of the demand curve and the marginal private cost curve, then
A)the socially optimal level of output will be produced.
B)society will incur a net social cost.
C)society will want more output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable.
D)There is not enough information provided to answer this question.

Question

Quizplus · Accepted Answer

If the production of a good results in negative externalities, then the marginal social cost will be higher than the marginal private cost. Therefore, at the point where the demand curve intersects with the marginal private cost curve, the output level will be higher than the socially optimal level. This means that society will incur a net social cost because the negative externalities are not fully accounted for in the market.

Suppose the Production of a Good Results in Negative Externalities