Negative externalities create a situation where the __________ costs of production exceed the private costs, leading to market inefficiencies.

Negative externalities occur when the actions of a producer or consumer have harmful effects on others that are not reflected in the costs of their activities. This means that the social costs, which include the private costs of production plus any additional costs to society, are greater than just the private costs faced by the producer. For example, if a factory pollutes a river while making products, the factory only pays for its own production costs, but the pollution affects the health of nearby residents and the environment. This discrepancy leads to market inefficiencies because the factory may produce more than what is socially optimal, harming society. Therefore, addressing negative externalities is important to ensure that both private and social costs are considered in decision-making.