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When the market produces output where the marginal social cost of production exceeds the marginal private cost to the firm, it must be the case that the production of the good involves: a) negative production externalities
When the market produces output where the marginal social cost of production exceeds the marginal private cost to the firm, it must be the case that the production of the good involves:
a) negative production externalities.
b) negative consumption externalities.
c) positive production externalities.
d) positive consumption externalities.
e) both negative production and consumption externalities.
Expert Solution
When the market produces output where the marginal social cost of production exceeds the marginal private cost to the firm, it must be the case that the production of the good involves:
e) both negative production and consumption externalities.
Production activities may result in negative externalities. This is a situation where production activities may lead to the emission of harmful products into the environment such as gases which may lead to lung diseases. On the other hand, consumption externalities occur in a situation where consumers welfare is decreased when he or she consumes the given commodity.
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