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 tax.

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 tax.

Quizplus · Accepted Answer

The graph shows a negative externality, as the marginal social cost (MSC) curve is above the marginal private cost (MPC) curve. This means that the production and consumption of the good results in a cost to society that exceeds the cost to the individual consumer. Therefore, the correct choice is C, which states that the good generates negative externalities.

Refer to the Figure Below