What generally happens to the consumer surplus when a negative externality is present?

When a negative externality is present, the overall market output tends to exceed the socially optimal level of production. This occurs because the costs that are externalized—typically borne by third parties not involved in the transaction—are not reflected in the market price. As a result, producers and consumers engage in exchanges that do not account for these external costs.

In this scenario, consumer surplus can be affected in several ways. While consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay, the presence of negative externalities often leads to overconsumption of that good. This overconsumption results in a decrease in overall welfare because the true cost of the goods being consumed is higher than the consumers perceive.

Thus, the negative externality diminishes consumer surplus in the sense that the benefits consumers gain from the product are outweighed by the external costs imposed on society (such as pollution or resource depletion). Therefore, it can be concluded that when negative externalities are prevalent, consumer surplus typically decreases as the market operates inefficiently, leading to welfare losses.