If in market equilibrium the marginal social cost of producing a good exceeds the marginal private cost,
A)not enough of the product is being produced
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)the government should produce the good

Question

Quizplus · Accepted Answer

If the marginal social cost (MSC) of producing a good exceeds the marginal private cost (MPC), there is a negative externality associated with the production of the good. This means that the cost to society of producing the good (including the harmful effects on others not involved in the transaction) is higher than the cost to the producer. Hence, too much of the good is being produced from a social efficiency perspective. To correct for this, the government can intervene through policies such as taxes, subsidies, or regulations to internalize the external costs and bring the market to a socially optimal level of production.

If in Market Equilibrium the Marginal Social Cost of Producing