If the marginal external cost of producing a good is positive, then the production of the good involves a _____ externality, and the marginal social cost curve lies _____ the marginal private cost curve.

Question

Quizplus · Accepted Answer

When the marginal external cost of producing a good is positive, it means that the production of the good imposes additional costs on society that are not borne by the producer. This is a negative externality because it has a harmful effect on third parties. Consequently, the marginal social cost (which includes both private costs and external costs) is higher than the marginal private cost, meaning the marginal social cost curve lies above the marginal private cost curve.

If the Marginal External Cost of Producing a Good Is