Why are markets often inefficient when negative externalities are present
A)Private costs exceed social costs at the private market solution.
B)Externalities can never be corrected without government regulation.
C)Social costs exceed private costs at the private market solution.
D)Production externalities lead to consumption externalities.

Question

Quizplus · Accepted Answer

In the presence of negative externalities, such as pollution or traffic congestion, social costs exceed private costs at the private market solution. This is because the private market only takes into account the costs and benefits to the buyer and seller, while ignoring the costs and benefits to others in society who are affected by the externality. As a result, the market may produce too much of a good that generates negative externalities, leading to an inefficient allocation of resources.

Why Are Markets Often Inefficient When Negative Externalities Are Present