Refer to the figure below. This graph describes a good that:
A)generates positive externalities.
B)should be banned.
C)generates negative externalities.
D)the government should subsidize.

Question

Refer to the figure below. This graph describes a good that: 
A)generates positive externalities. 
B)should be banned. 
C)generates negative externalities. 
D)the government should subsidize.

Quizplus · Accepted Answer

The graph shows that the social cost (the cost to society including negative externalities) is greater than the private cost (the cost to the producer only). This indicates that the good is generating negative externalities, meaning that there are costs being imposed on society that are not reflected in the price that the consumer pays. Therefore, the best choice is C, which indicates that the good generates negative externalities.

Refer to the Figure Below