The marginal private cost of producing a good is $8, and the marginal social cost is $9. Therefore, the production of the good creates a ______ externality, and the equilibrium quantity produced will be _____ the socially optimal quantity.

Question

Quizplus · Accepted Answer

When the marginal social cost is higher than the marginal private cost, it indicates that there are external costs not accounted for by the producer, leading to a negative externality. Consequently, without intervention, the quantity produced will be higher than the socially optimal level, as the producer does not bear the full cost of production.

The Marginal Private Cost of Producing a Good Is $8