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Homework answers / question archive / If the government takes no action in response to a negative externality, is it likely that this activity will take place more or less than the socially optimal amount?
If the government takes no action in response to a negative externality, is it likely that this activity will take place more or less than the socially optimal amount?
In the case of negative externality with no government control, the firms tend to produce more than the socially optimal level so that they can raise their profitability level. Henceforth, it can be inferred that with negative externality, there is an over-production of a product above the socially optimal level as different costs are ignored.
