When there is a negative externality, the marginal private cost of production ________ the marginal social cost of production.
A)is greater than
B)is equal to
C)eliminates
D)is less than

Question

Quizplus · Accepted Answer

Negative externalities impose costs on society that are not reflected in the private costs of the producer. This means that the marginal private cost (MPC) of production is less than the marginal social cost (MSC), as the latter includes the costs to society imposed by the negative externality. Therefore, producers will produce a higher quantity than is socially optimal, resulting in market failure.

When There Is a Negative Externality, the Marginal Private Cost