Homework Answers
Since when action of one individual creates benefits or loss to others but they do not pay or receive anything for it, then it is called externality.
When action of one individual creates loss to others but people who get loss due to that person action, does not receive any compensation from that person, then it is called negative externality.
Social efficient level of output can be produced in case of negative externality When
Social marginal cost= Demand curve ( marginal benefit)
Private optimum level condition
Private maringal cost= Demand curve
So in case of negative externality private optimum quantity will be produced at higher price.
As a result of negative externality too much quantity will be produced but higher price.
Hence option c is the correct answer.
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