A negative externality exists when:

• A. the private benefit of consuming a good exceeds the social benefit
• B. the social benefit of consuming a good exceeds the private benefit
• C. the social cost of producing a good exceeds the private cost
• D. the private cost of producing a good exceeds the social cost

Answer: (C)

Verified step by step guidance

1. Understand the concept of externalities: Externalities occur when the actions of individuals or firms have effects on third parties that are not reflected in market prices.
2. Distinguish between positive and negative externalities: A negative externality happens when the social cost of an activity exceeds the private cost, meaning the activity imposes additional costs on society that the producer does not pay for.
3. Define private cost and social cost: Private cost is the cost borne directly by the producer, while social cost includes both the private cost and any external costs imposed on others.
4. Analyze the options given: The correct condition for a negative externality is when the social cost of producing a good exceeds the private cost, indicating that the production imposes extra costs on society beyond what the producer pays.
5. Conclude that the statement 'the social cost of producing a good exceeds the private cost' correctly describes a negative externality.