If negative externalities are created in the production of a good, then society will:
A)produce too much of the good since the marginal private cost to firms is less than the marginal social cost.
B)produce too little of the good since the marginal private cost to firms is less than the marginal social cost.
C)produce too much of the good since the marginal private cost to firms is greater than the marginal social cost.
D)produce too little of the good since the marginal private cost to firms is greater than the marginal social cost.

Question

If negative externalities are created in the production of a good, then society will:
A)​produce too much of the good since the marginal private cost to firms is less than the marginal social cost.
B)​produce too little of the good since the marginal private cost to firms is less than the marginal social cost.
C)​produce too much of the good since the marginal private cost to firms is greater than the marginal social cost.
D)​produce too little of the good since the marginal private cost to firms is greater than the marginal social cost.

Quizplus · Accepted Answer

Negative externalities in production mean that the total cost to society (marginal social cost) is higher than the cost to the firms (marginal private cost). As a result, firms do not account for the external costs, leading to overproduction of the good compared to the socially optimal level.

If Negative Externalities Are Created in the Production of a Good