Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where Select one: O a. the transaction costs of private bargaining are minimized. O b. the value of electricity to consumers equals the social cost of producing electricity. O c. the cost of the externality is maximized. O d. the value of electricity to consumers equals the private cost of producing electricity.

Environmental degradation can result from economic activity. This trade-off occurs in all nations, whether they have high or low incomes, market- or command-oriented economies.

When a trade between a buyer and a seller has an effect on a third person who is not a part of the exchange, it is known as an externality, also referred to as a spillover. Externalities can be either good or bad.

Externalities are one form of a market failure. A market failure occurs when the market does not efficiently allocate resources on its own in a way that balances social costs and benefits.

In addition to the private expenses that businesses incur, social costs also comprise additional external costs that third parties outside the production process incur.

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