Question

Consider the market for production and in there to the b o rest the manage cool the main num Assume the consumption of alcohol generates a negative enemy such that represents the magna social in the presence of a negative externally the mat b um will produce of the good the range o g fortshade in the deadweight loss created by the negative tematy in consumption y las haded area

Answer 1

The negative externality occurs when the adverse effect of a consumption or production activity falls on the third party. When there is a negative externality the socially efficient equilibrium will be much less than the private market outcome, this is because there is an external cost associated with the private market outcome. The socially efficient outcome internalizes the marginal external costs.

In the presence of the negative externality, the market outcome would produce more of the good.

Y Dead weight loss Price D1 Quantity $2