Why do private markets fail to reach a socially optimal level when negative externalities are present
A)Private benefit exceeds social benefit at the private market solution.
B)Private costs exceed social costs at the private market solution.
C)Social costs exceed private costs at the private market solution.
D)Social benefit exceeds private benefit at the private market solution.

Question

Quizplus · Accepted Answer

When negative externalities are present, the social cost of production or consumption exceeds the private costs incurred by the individual or firm. As a result, the private market solution leads to an underproduction or overconsumption of the good or service in question, which falls short of the socially optimal level. In other words, the market fails to account for the full costs of production or consumption, resulting in a misallocation of resources. This can be addressed through government intervention, such as the imposition of taxes or regulations, or through other market-based solutions such as subsidies and cap-and-trade systems.

Why Do Private Markets Fail to Reach a Socially Optimal