A negative externality exists if
c) the marginal social cost of producing a good or service exceeds the private cost.

A negative externality is an effect of a production or consumption activity that imposes costs on a third party, or external party, without that third party receiving any compensating benefits. Negative externalities arise when production or consumption of a good or service generates costs that are not borne by the producer or consumer. This is typically because the costs are not taken into account as a part of the transaction and, in effect, the costs are externalized onto society. In such a case, the marginal social cost of producing a good or service will be greater than the private cost because the private cost does not incorporate the external costs.