Home Economics Business Studies Search the Guru Links Message Boards Contacts

Market Failure and Externalities


When negative production externalities exist, marginal social cost > private marginal cost. This is shown in the diagram below where the marginal social cost of production exceeds the private costs faced only by the producer/supplier of the product. In our example an externality could be caused by a supplier of fertiliser to the agricultural industry creating some external costs to the environment arising from their production process.



E-mail Steve Margetts