The harvesting of corn generates external costs in the form of methane gas emissions. In equilibrium:

Question

Quizplus · Accepted Answer

When there are external costs involved in the production of a good, the market price will be lower than the socially optimal price. In this case, the production of corn creates methane gas emissions which are an external cost. Therefore, the price of a bushel of corn will be less than the marginal social cost of the last bushel of corn sold. This is because the market does not take into account the negative impact of methane gas emissions, causing the market to produce too much corn. The socially optimal quantity produced is less than the quantity produced in the market equilibrium.

The Harvesting of Corn Generates External Costs in the Form