Why Does the Presence of Negative Externalities Lead to a Misallocation

question 35

Multiple Choice

Why does the presence of negative externalities lead to a misallocation of societal resources?

• A) because whenever external costs are imposed on outside parties, the good should not be produced at all
• B) because the government always intervenes in markets when negative externalities are present
• C) because less of the good than is ideal for society is produced
• D) because there are some costs associated with production that the producer fails to take into consideration