What is the primary effect of negative externalities on society?

Negative externalities occur when the actions of individuals or businesses have unintended adverse effects on third parties that are not taken into account by the market. The primary effect of these externalities is that they impose costs on society that are not reflected in market prices. This means that while a producer may benefit from their activity, the negative effects—such as pollution, resource depletion, or public health issues—impact others without being captured in the costs of the goods or services produced.

For instance, a factory that emits pollutants may lower its production costs and sell its products at a competitive price. However, the related health issues and environmental degradation are borne by the community and the ecosystem, leading to a situation where the true cost to society is much greater than what is indicated by market prices. This discrepancy can lead to overconsumption or overproduction of goods associated with negative externalities, ultimately reducing overall economic welfare.

In contrast to the other answer choices, which either suggest benefits or ignore the societal costs involved, the recognition of these external costs is essential for addressing issues related to negative externalities. By acknowledging that these costs exist and are significant, policymakers can implement interventions, such as taxes or regulations, to help internalize these externalities, thereby moving the economy towards a