If the production of a good yields a negative externality, then the socially optimal quantity is less than the equilibrium quantity.
An externality is a cost or the benefit which is caused by any producer who is not financially incurred or received by that producer.
An externality can be both positive or it can be negative and can stem from either the production or consumption of a good or service. The costs and benefits can be both private to any individual or an organization or it can be in social form which means that it can affect society as a whole
Most of the externalities are negative. Pollution is a common negative externality. A corporation may also decide to cut costs and increase profits by implementing new operations which are more harmful to the environment.
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