explain why most goods/services that bring about negative externalities are overproduced in the market. in your...

explain why most goods/services that bring about negative externalities are overproduced in the market. in your explanation, include the terms "social cost" and "private cost"

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Expert Solution

Negative externalities refers to the negative actions of any firms or Individuals that indirectly impacts the third parties who were not directly involved in the transaction.
When negative externalities are present within a market economy, social costs exceeds private costs.
But to internalize these private costs, the firm's only consider these costs and overproduce within the market while ignoring the costs incurred by others.
If they consider the social costs then their productivity will decrease, hence they ignore social costs during production and overproduce to internalize their private costs.

Rahul Sunny answered 2 years ago

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