Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
explain using the diagram why a negative externality leads to a market failur. how can the Government fix the problem created by a negative externality?

Transcribed Image Text:TYRES
private + social cost
S1
Price
S private cost
NEGATIVE
EXTERNALITY
TAX/FINE
P1
D
Q1
Quantity
P.
Expert Solution

Step 1
In a market, externality refers to the additional cost or benefits to the third party or enviornment associated with the action of an individual or a firm.
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