ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the plant’s marginal social costs are higher than the plant’s marginal private costs, the marginal external cost is positive and results in a negative externality, meaning it produces a negative effect on the environment.

Detailed explanation-2: -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-3: -Social costs grow with the level of pollution, which increases in tandem with production levels, so goods with negative externalities are overproduced when only private costs are considered in decisions and not costs incurred by others. To minimize social costs would lead to lower production levels.

Detailed explanation-4: -A negative externality is a cost that is suffered by a third party as a consequence of an economic transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include any individual, organisation, property owner, or resource that is indirectly affected.

Detailed explanation-5: -A negative externality exists when the production or consumption of a product results in a cost to a third party. Air and noise pollution are commonly cited examples of negative externalities.