Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Negative externalities result in a deadweight loss in the market.
B
Consumers fully bear the costs of their consumption choices.
C
Government intervention, such as taxes, can help correct inefficiencies caused by negative externalities.
D
The marginal social benefit of a good is always equal to the marginal private benefit.
E
Third parties may incur costs that are not reflected in the market price.
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, if someone smokes cigarettes in a public space, the smoke can negatively affect the health of nearby non-smokers. This means that the true cost of smoking isn't just what the smoker pays for cigarettes; it also includes the health issues faced by others. As a result, the market may produce more of the harmful good than is socially optimal, leading to overconsumption. Addressing negative externalities often requires government intervention, such as taxes or regulations, to help reduce the harmful effects on society.
Detailed Explanation
Other options are incorrect because Some people think negative externalities don't affect the market much; It's a common belief that consumers pay all costs.
Key Concepts
Negative Externalities in Consumption
Marginal Social Benefit vs. Marginal Private Benefit
Government Intervention
Topic
Negative Externalities in Consumption
Difficulty
medium level question
Cognitive Level
understand
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