If an action by an individual has a negative external effect, the level of activity that maximizes society's net benefit is:
A) always indeterminate for lack of information.
B) equal to the level that maximizes the individual's net benefit.
C) less than the level that maximizes the individual's net benefit.
D) greater than the level that maximizes the individual's net benefit.

Question

Quizplus · Accepted Answer

When an action has a negative external effect, it means that it imposes costs on others that are not considered by the individual making the decision. Therefore, the level of activity that maximizes society's net benefit is less than the level that maximizes the individual's net benefit, because it accounts for the external costs imposed on others.

If an Action by an Individual Has a Negative External