Which of the following is true when the production of a good results in negative externalities?

A. the government must produce the good

B. the private market will produce too little of the good

C. the private market price will be too low

D. the government will always prevent the production of the good

E. private firms will not be able to maximize profits

D. The government will prevent production of the good

Explanation:

Externalities are benefit or harm to third party, without being reflected in prices. Positive & Negative Externalities are benefits & harms to third party respectively. Egs : Education & Pollution (resp.)

Positive Externalities : Total Benefit = Private Benefit + Social Benefit

Negative Externalities : Total Cost = Private Cost + Social Cost

But - Market Production happens at : Private Marginal Benefit = Private Marginal Cost. This leads to underproduction of positive externalities, over production of negative externalities.

So govt takes corrective meassures to boost the underproduction of positive externalities & to curtail overproduction of negative externalities.