If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:
A)does not include the external cost.
B)includes the external cost.
C)does not include the external benefit.
D)includes the external benefit.
E)equals the social cost of oil refining.

Question

Quizplus · Accepted Answer

The cost of production as seen by the oil refinery does not include the external cost of negative externalities such as pollution or health impacts on nearby residents. This is because these costs are typically borne by society as a whole rather than by the refinery specifically. Therefore, the refinery may not fully account for the total social cost of the activity, and there may be a market failure.

If a Negative Externality Results from the Refining of Oil