Economics · Externalities and Social Costs
Which sequence correctly describes the progression from private cost to social cost in production involving a negative externality?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Private Marginal Cost → Add Marginal External Cost → Social Marginal Cost → Social optimum is where SMC = Marginal Social Benefit✓
- 2Social Marginal Cost → Subtract Marginal Damage → Private Marginal Cost → Market equilibrium is optimum
- 3Private Marginal Cost → Subtract Marginal External Cost → Social Marginal Cost → Social optimum
- 4Marginal Social Benefit → Add Marginal External Cost → Social Marginal Cost → Market equilibrium
Correct answer
Private Marginal Cost → Add Marginal External Cost → Social Marginal Cost → Social optimum is where SMC = Marginal Social Benefit
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