Consider a market with a negative externality.The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.

Question

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In a market with a negative externality, the market participants tend to ignore the external cost of their decisions. This means that they do not take into account the costs imposed on third parties, and as a result, they will overproduce the good. For example, if a factory is producing goods that create pollution, the cost of the pollution is borne by the people who live near the factory, rather than the factory itself. If the factory does not have to pay for the cost of the pollution, it will produce more than is socially optimal, and the market will tend to overproduce the good.

Consider a Market with a Negative Externality