Question

If a negative externality exists, then there is a __________ when society produces the market output instead of the socially optimal output. This exists because the __________ to sellers and third parties are __________ the __________ derived by buyers.

a. net social benefit; costs; greater than; benefits

b. net social cost; benefits; less than; costs

c. net social cost; costs; greater than; benefits

d. net social cost; costs; less than; benefits

e. none of the above

Answer 1

Option c

c. net social cost; costs; greater than; benefits

A negative externality means there is an external cost to the third parties so the output produced at the market equilibrium is overproduction and that has higher costs than the benefits to the consumers so it is not socially efficient output.