ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A negative externality happens when a third party that is not directly involved in the market transaction is adversely impacted. When there is a negative externality, the marginal social cost (MSC) is higher than the marginal private cost (MPC) by the amount of external cost imposed on the third party or the society.

Detailed explanation-2: -If social costs exceed private costs, then there are negative production externalities.

Detailed explanation-3: -Private cost is different from social cost because the private cost is paid by a private individual or firm, whereas society pays the social cost. Society as a whole pays the externalities because when there is acid rain, it helps in the generation of electricity production.

Detailed explanation-4: -A Pigovian tax is intended to tax the producer of goods or services that create adverse side effects for society. Economists argue that the costs of these negative externalities, such as environmental pollution, are borne by society rather than the producer.