Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They increase consumer surplus
B
They result in overconsumption of harmful goods
C
They create perfect competition
D
They reduce government intervention
Understanding the Answer
Let's break down why this is correct
Answer
Negative externalities in consumption occur when the actions of consumers have harmful effects on others who are not involved in the transaction. For example, when someone smokes in a public area, the smoke can affect the health of nearby non-smokers, causing them discomfort or health issues. This situation leads to market failure because the true cost of smoking is not reflected in the price of cigarettes; consumers only consider their personal enjoyment, ignoring the negative impact on others. As a result, there may be too much smoking in society compared to what would be ideal if all costs were considered. Therefore, the market does not allocate resources efficiently, leading to an overall loss of welfare in the community.
Detailed Explanation
Negative externalities happen when people consume things that harm others, like smoking. Other options are incorrect because Some might think that negative effects increase benefits for consumers; It's a common belief that negative externalities create a fair market.
Key Concepts
negative externalities
consumption
market failure
Topic
Negative Externalities in Consumption
Difficulty
hard level question
Cognitive Level
understand
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