When negative externalities exist at a market: a

Marketing Dec 28, 2020

When negative externalities exist at a market:

a.) equilibrium output will be greater than the efficient price

b.) equilibrium output will be greater than efficient output

Expert Solution

The answer to this question is:

b.) equilibrium output will be greater than efficient output

In the presence of a negative externality, the equilibrium output, that is, output determined by the forces of supply and demand often exceeds the socially optimum output. This happens since the market equilibrium reflects the private costs of production only.

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