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In: Economics

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"

Solutions

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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