Final answer:
In the event of a negative externality like pollution, the private cost of production is less than the social cost, indicating a market failure.
Step-by-step explanation:
When there is a negative externality, the private cost of production is less than the social cost of production. This situation is a case of market failure because the market equilibrium does not account for the external costs, such as environmental damage, that affect third parties. An example is pollution from manufacturing, where the supply curve reflects only the private costs to firms and not the additional external costs to society. Thus, at the market output level, social costs of production exceed the social benefits to consumers, leading to an excessive production of the product with the associated negative repercussions on the environment.