If the marginal social cost of producing a good exceeds the marginal private cost,then _____
A)the quantity of the good being produced is too less.
B)the price charged for the good is too high.
C)the good produces a positive externality.
D)the good produces a negative externality.
E)social welfare is likely to increase by producing more of the good.

Question

Quizplus · Accepted Answer

If the marginal social cost of producing a good exceeds the marginal private cost, it means that there is a negative externality being generated. In this case, the good produces costs that affect people outside the transaction between buyer and seller. Thus, the quantity of the good being produced is too high, and the price charged for the good is too low. To account for the social cost, the producer would have to charge a higher price, which would decrease the quantity demanded by consumers. The optimal outcome would be to reduce the quantity of the good produced to the point where the marginal social cost equals the marginal private cost, that is, to internalize the externality.

If the Marginal Social Cost of Producing a Good Exceeds