Competition in the presence of negative externality will result in the following outcome:
A) the market price will be lower and output will be lower than socially desirable.
B) the market price will be lower and output will be higher than socially desirable.
C) the market price will be higher and output will be lower than socially desirable.
D) the market price output will be the same as socially desirable.

Question

Quizplus · Accepted Answer

In the presence of a negative externality, such as pollution, the market tends to produce more of the good than is socially desirable because the external costs are not reflected in the market price. This leads to a lower market price and higher output than what would be considered optimal from a societal perspective.

Competition in the Presence of Negative Externality Will Result in the Following