In the market for fossil-fuel-based electricity, too many resources are allocated to production because the associated MSC is above the MPC.

Question

Quizplus · Accepted Answer

This statement accurately reflects the concept of a negative externality in economics, where the social cost (MSC) of producing a good or service is higher than the private cost (MPC) of the producer. This often leads to overproduction and inefficient allocation of resources, which can have negative impacts on society and the environment. In the case of fossil-fuel-based electricity, the production and consumption of these resources can generate significant negative externalities such as air pollution, climate change, and health impacts, which are not reflected in the market price and are instead borne by society as a whole.

In the Market for Fossil-Fuel-Based Electricity, Too Many Resources Are