Question

A negative externality will cause a private market to produce a. less than is socially desirable. b. more than is socially desirable. c. exactly the quantity that is socially desirable. d. less than the same market would produce in the presence of a positive externality.

Answer 1

Answer: Option B

Explanation:

Negative externality means the loss suffered by the third party because of happening of a transaction. In a trade transaction two parties are involved one is the buyer and the other is the seller. The third party of the transaction are outsiders they indirectly get affected because of the transaction.

When there is negative externality the private markets will over produce due to the cost of production increases while the profits are low. The negative externalities might be like noise or air pollution which affects the outsiders.