If a market solution provides greater marginal social costs than marginal social benefits, then:
A) a positive externality is present.
B) a negative externality is present.
C) no net externality is present.
D) any externality has already been internalized.

Question

Quizplus · Accepted Answer

When the marginal social costs are greater than the marginal social benefits, it means that the negative impact on society (costs) outweighs the positive impact (benefits). This implies the presence of a negative externality, where the market is not taking into account the full costs of the activity. As a result, there is an overproduction of the good/service, which can lead to market inefficiencies and negative social consequences. Therefore, option B is the correct answer.

If a Market Solution Provides Greater Marginal Social Costs Than