Negative Externality The Following Questions Refer to the Accompanying Diagram, Which Shows

question 50

Multiple Choice

Negative Externality

The following questions refer to the accompanying diagram, which shows the effects of a negative externality created by an industry's production. The equilibrium quantity in the absence of any attempt to internalize the externality is QE, and the optimal quantity according to a Pigovian analysis is QO.


-Refer to Negative Externality.Suppose there is no attempt to internalize the externality.Pigovian analysis indicates that the externality creates a deadweight loss equal to

• A) area C + D + E + G + H.
• B) area D + E + H.
• C) area C + D + G + H.
• D) area E.

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