In a market for a good that has a negative externality, a

Marketing Dec 25, 2020

In a market for a good that has a negative externality,

a. the social cost is lower than the private cost

b. the social cost is higher than the private cost

c. the social cost and the private cost are the same

d. too little of the good is being used

Expert Solution

The correct option is (b) - the social cost is higher than the private cost.

When the negative externality is present in the economy then there is an overproduction of that product in the market which usually leads to a rise in the social cost over and above the private cost. Mathematically, the social cost is the sum of external cost and the private cost.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote