When a negative externality creates a market failure, that failure can be corrected by
A) setting price equal to private cost
B) setting price equal to social cost
C) setting price equal to the externality cost
D) creating a positive externality of comparable value
E) setting private cost equal to social cost

Question

Quizplus · Accepted Answer

Setting the price equal to the social cost internalizes the externality, ensuring that the market reflects the true cost of production, including the negative externality.

When a Negative Externality Creates a Market Failure, That Failure