If There Is a Negative Externality, and the Market Output

question 35

Multiple Choice

If there is a negative externality, and the market output is 100 units more than the socially optimal output, then it follows that

• A)the external costs associated with the negative externality are greater than the marginal private costs.
• B)the external costs associated with the negative externality are less than the marginal private costs.
• C)there is market failure.
• D)any tax imposed on the production of the output will bring about the socially optimal output.
• E)none of the above

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Definitions:

Consumer Price Index

An indicator that calculates the weighted mean of the cost of a selection of consumer products and services, used to signify the rate of inflation.

Cost of Living

Cost of Living refers to the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain place and time.

Inflation Rate

The increase pace in the cost of living, as reflected in goods and services prices, leading to reduced money value.

Consumer Price Index

A measure assessing the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.