What is a negative externality?(1 point)
Negative externalities occur when the social cost of a good or service is lower than the private cost.
Negative externalities are goods or services that one consumer can limit another consumer's use of.
Negative externalities are goods or services that are subject to the free-rider problem.
Negative externalities occur when the social cost of a good or service is higher than the private cost.
please help
The correct answer is:
Negative externalities occur when the social cost of a good or service is higher than the private cost.
To understand this concept, we need to understand the difference between private cost and social cost. Private cost refers to the cost borne by individuals or firms directly involved in producing or consuming a good or service. This includes the costs of production, such as raw materials, labor, and capital.
On the other hand, social cost includes not only the private cost but also the additional costs imposed on society as a whole, which are not accounted for by the individual or firm making the decision. These additional costs can be in the form of pollution, congestion, or other negative effects on the environment or other people's well-being.
When the social cost of a good or service is higher than the private cost, it means that there are negative externalities associated with its production or consumption. This happens when the individual or firm making the decision does not have to bear the full costs of their actions, and therefore, they do not take them into account when making their choices. As a result, society as a whole suffers from the negative consequences, such as pollution or congestion, which are not reflected in the market price.
Understanding negative externalities is important because they can lead to market failures, where the market fails to efficiently allocate resources. To address negative externalities, policymakers may implement measures such as taxes, regulations, or subsidies, to internalize the costs and align the private and social costs.