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Diagram - Negative Externalities

clipped from www.bized.co.uk

If there are negative externalities then the marginal social benefit will be less than the marginal private benefit.View larger version.

Brief description: If there are negative externalities then the marginal social benefit will be less than the marginal private benefit.

Detailed description: The optimum equilibrium for society would be where the marginal social cost is equal to the marginal social benefit (Q!). However, a free market left to itself will produce where the marginal private cost is equal to the marginal private benefit (Q^). If there are negative externalities in consumption, a private market will therefore tend to over-provide a good.

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