Question

Consider a market with a negative externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision. a. overproduce; external benefit b. underproduce; external benefit c. overproduce; external cost d. underproduce; external cost e. overproduce; internal benefit

Answer 1

Answer:

The correct option is C,overproduce, external cost

Explanation:

Externalities are benefits or disadvantages caused to third parties from the production of a product or rendering of a service.

Externalities can result from positive or negative production as well as positive or negative consumption.

Negative externality refers to harm not benefit, which stems from overproduction because the higher the level of production or consumption the higher the negative impact.

A typical example is the harmful substance released into the atmosphere from burning fossil fuels which impacts the life of peoplr in a negative way.The external cost in this instance is the cost medicare required to take of affected persons that is not included in the price of the good sold