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AP® Microeconomics

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Moderate

Negative Externalities: MSB and MSC

APMICR-LL4NH9

When negative externalities exist in a perfectly competitive market with no government intervention, which of the following is TRUE?

A

Marginal social benefit and marginal social cost are equal at equilibrium.

B

Marginal social benefit is greater than marginal social cost at equilibrium.

C

Marginal social benefit is less than marginal social cost at equilibrium.

D

The quantity at market equilibrium will be less than the allocatively efficient quantity.

E

The market will produce the allocatively efficient quantity.