If the social cost of producing a good or service exceeds the private cost,
A)a positive externality exists.
B)the sum of consumer surplus and producer surplus is maximised.
C)the market achieves economic efficiency.
D)a negative externality exists.

Question

Quizplus · Accepted Answer

When the social cost of producing a good or service exceeds the private cost, it means that there are additional costs to third parties or society as a whole, which are not accounted for by the producer. This is known as a negative externality, and it results in overproduction and a misallocation of resources. Therefore, the best choice is D, which states that a negative externality exists.

If the Social Cost of Producing a Good or Service