A negative externality exists when
A)marginal social costs are less than marginal private costs.
B)marginal social costs are greater than marginal private costs.
C)marginal social benefits are less than marginal private benefits.
D)marginal social benefits are greater than marginal private benefits.

Question

Quizplus · Accepted Answer

A negative externality occurs when the cost of a decision made by one person is borne by others who did not make the decision, resulting in marginal social costs being greater than marginal private costs. This can result in overproduction or consumption of a good or service, leading to market inefficiency. Options A, C, and D all refer to cases where there is no externality or a positive externality.

A Negative Externality Exists When