Which curve lies above the other in the presence of a negative externality?

• A. The marginal social cost curve lies above the marginal private cost curve
• B. The marginal private cost curve lies above the marginal social cost curve
• C. The marginal social benefit curve lies above the marginal private benefit curve
• D. The average cost curve lies above the marginal cost curve

Answer: (A)

When a negative externality is present, society bears extra costs from production that the producer doesn’t pay. The marginal private cost is the producer’s cost for one more unit, while the marginal social cost adds the external costs borne by others. So MSC is higher than MPC for every level of output, placing the marginal social cost curve above the marginal private cost curve. This reflects why the market overproduces relative to the social optimum, since external costs aren’t internalized. The other ideas don’t fit because negative externalities change costs, not benefits, and the comparison isn’t about average cost in this context.