In the presence of a negative externality, where is the social marginal cost curve relative to the private marginal cost curve?

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Prepare for the AP Microeconomics exam on Market Failure and the Role of Government with detailed quizzes featuring multiple-choice questions, hints, and explanations. Master your understanding and ace the test!

Multiple Choice

In the presence of a negative externality, where is the social marginal cost curve relative to the private marginal cost curve?

External costs from a negative externality change the relationship between what a producer costs themselves and what society pays. Social marginal cost includes both the private cost to the producer and the additional harm imposed on others. So, MSC = MPC + marginal external cost, and since the external cost is positive, MSC sits above MPC. That’s why the social cost of producing an additional unit is higher than the private cost faced by the producer. In other words, the presence of the negative externality shifts the social marginal cost curve upward relative to the private marginal cost curve.

In the presence of a negative externality, where is the social marginal cost curve relative to the private marginal cost curve?

Prepare for the AP Microeconomics exam on Market Failure and the Role of Government with detailed quizzes featuring multiple-choice questions, hints, and explanations. Master your understanding and ace the test!

In the presence of a negative externality, where is the social marginal cost curve relative to the private marginal cost curve?

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