When negative externalities are present in a market a. private costs will be greater than social costs. b. social costs will be greater than private costs. c. only government regulation will solve the problem. d. the market will not be able to reach any equilibrium

Question

Derick Andersen

Business

16 March, 13:16

When negative externalities are present in a market a. private costs will be greater than social costs. b. social costs will be greater than private costs. c. only government regulation will solve the problem. d. the market will not be able to reach any equilibrium

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Answers (1)

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Aubrey · Answer 1

C. only government regulation will solve the problem.

Explanation:

An externality is a cost or benefit that occurs with an economic activity that affects third parties, who are not engaged in the activity and also they don't have any control over it.

Externality could be of two types:

Negative externality. Positive externality.

A negative externality is a cost that affects the third party by the economic activity, however, it does not affect the party who is directly engaged in the activity. It does not impact the cost of production, so production increases. The government have to take action to resolve this problem of society.

A positive externality is a benefit of an economic activity that causes good to the third parties, who are not engaged in the activity.