For a Common Resource, the Marginal Private Cost Curve Slopes

question 74

Multiple Choice

For a common resource, the marginal private cost curve slopes ________ and the marginal social cost curve slopes ________.

• A) upward; upward
• B) upward; downward
• C) downward; upward
• D) downward; downward

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Definitions:

Positive Externalities

Benefits that occur from a transaction or activity to third parties who are not directly involved in the transaction or activity.

External Costs

Costs of a transaction or activity that affect parties who did not choose to incur that cost and are not reflected in market prices, often necessitating government intervention.

External Benefits

The positive effects of a transaction or an activity on an uninvolved third party or the society at large, which are not reflected in the market prices.

Externality

An economic term describing an indirect effect of a transaction not reflected in the market price, affecting third parties who did not choose to be involved.