An negative externality is present whenever:
A)the private marginal cost of an activity exceeds the private marginal benefit.
B)the private marginal benefit of an activity exceeds the private marginal cost.
C)the social marginal cost of an activity exceeds the private marginal cost.
D)none of the above

Question

An negative externality is present whenever:
A)​the private marginal cost of an activity exceeds the private marginal benefit.
B)​the private marginal benefit of an activity exceeds the private marginal cost.
C)​the social marginal cost of an activity exceeds the private marginal cost.
D)​none of the above

Quizplus · Accepted Answer

Negative externalities occur when the social cost of an activity exceeds the private cost, meaning that the cost to society as a whole is greater than the cost to the individual or firm engaging in the activity. This can include costs such as pollution, traffic congestion, or noise, which are not fully taken into account by those who create them. Option A describes a situation where the private cost exceeds the private benefit, which would lead individuals or firms to reduce or stop the activity altogether. Option B describes a situation where the private benefit outweighs the private cost, which would lead individuals or firms to increase the activity. Neither of these options represent a negative externality. Option D is incorrect because one of the options must be correct according to the question.

An Negative Externality Is Present Whenever