When a negative externality exists in a market,how does the cost to producers compare with the cost to society
A)The cost to producers will be greater than the cost to society.
B)The cost to producers will be the same as the cost to society.
C)The cost to producers will be less than the cost to society.
D)The cost to producers and society will be different, regardless of whether an externality is present.

Question

Quizplus · Accepted Answer

When a negative externality exists in a market, the cost to producers will generally be less than the cost to society. This is because producers only take into account their private costs while ignoring the external costs imposed on others. As a result, the market outcome will lead to overproduction and an inefficient allocation of resources where the social cost is greater than the private cost. Therefore, there is a difference between the cost to producers and the cost to society.

When a Negative Externality Exists in a Market,how Does the Cost