A negative externality exists if A. there are price controls in a market. B. the marginal private cost of producing a good or service exceeds the social cost. C. there are quantity controls in a market. D. the marginal social cost of producing a good or service exceeds the private cost.

A negative externality exists if A. there are price controls in a market. B. the marginal private cost of producing a good or service exceeds the social cost. C. there are quantity controls in a market. D. the marginal social cost of producing a good or service exceeds the private cost.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 1QR

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

Question

A negative externality exists if

there are price controls in a market.

the marginal private cost of producing a good or service exceeds the social cost.

there are quantity controls in a market.

the marginal social cost of producing a good or service exceeds the private cost.

Definition Definition Total cost incurred by the producers of goods and services as well as anyone who is impacted by the production of the commodity in terms of external cost.

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