Question

For a negative externality, the __________________________ than the costs imposed on society as a whole. private costs of an action are less social costs of an action are less private benefits of an action are more social benefits of an action are more

Answer 1

Answer:

private costs of an action are less

Explanation:

A good has negative externality if the costs to third parties not involved in production is greater than the benefits. A good has negative externality when private costs of an action are less the costs imposed on society as a whole.  

An example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced.

Government can discourage the production of activities that generate negative externality by taxation. Taxation increases the cost of production and therefore discourages overproduction. Tax levied on externality is known as Pigouvian tax.

Government can regulate the amount of externality produced by placing an upper limit on the amount of negative externality permissible

Coase theorem has been proposed as a solution to externality. According to this theory, when there are conflicting property rights, bargaining between parties involved can lead to an efficient outcome only if the bargaining cost is low

Another solution to negative externality is through the activities of charities. Charities can raise donations to limit or regulate the activities of firms that constitutes a negative externality.