A Negative Externality Exists and Government Wants to Impose a Per-Unit

question 68

Multiple Choice

A negative externality exists and government wants to impose a per-unit tax in order to bring about the socially optimal output. To accomplish its objective, government must set the tax equal to marginal

• A)private cost.
• B)social benefit.
• C)external cost.
• D)social cost.
• E)private benefit.

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Definitions:

Producer Surplus

The disparity between the amount sellers are ready to accept for a good or service and the price they actually receive.

Supply-and-Demand

A fundamental economic model that describes how the price and quantity of goods and services are determined in a market based on the amount available (supply) and the desire to purchase (demand).

Equilibrium Output

The level of output where the quantity of goods or services producers are willing to supply equals the quantity consumers are willing to buy, resulting in market equilibrium.

Competitive Firm

A company that operates in a market where there are many buyers and sellers, and it has little control over the market price.