When the social cost curve is above a product's supply curve,what do we know
A)Government has intervened in the market.
B)A negative externality exists in the market.
C)A positive externality exists in the market.
D)The market reached equilibrium on its own.

Question

Quizplus · Accepted Answer

When the social cost curve is above the product's supply curve, it means that the cost to society is higher than the cost that producers face. This situation occurs when there is a negative externality present in the market, such as pollution or congestion. The negative effects of the externality are not reflected in the price of the product, so the supply curve does not take them into account. This leads to an overproduction of the product, which creates a social cost that is not being fully accounted for by the market.

When the Social Cost Curve Is Above a Product's Supply