Which of the following statements about private and social costs is TRUE in the presence of negative externalities created by pollution?
A)Competitive market produces excessive pollution.
B)The optimal amount of pollution is zero.
C)Social costs exclude externalities.
D)Social producer surplus exceeds private producer surplus.

Question

Quizplus · Accepted Answer

In the presence of negative externalities such as pollution, competitive markets tend to produce more pollution than is socially optimal because private costs borne by the producer do not include the external costs imposed on others. This leads to excessive production and pollution from a social perspective.

Which of the Following Statements About Private and Social Costs