When there is a negative externality in production, a) Marginal social benefit exceeds marginal private benefit

Economics Jun 07, 2021

When there is a negative externality in production, a) Marginal social benefit exceeds marginal private benefit. b) Marginal private benefit exceeds marginal social benefit. c) Marginal social cost exceeds marginal private cost. d) Marginal private cost exceeds marginal social cost

Expert Solution

Answer

c )

Explanation

When there is a negative externality, then:

Marginal social cost = Marginal private cost + Marginal external cost

So,

Marginal social cost is greater than Marginal private cost. The correct option is C "Marginal social cost exceeds Marginal private cost".

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