If the Production of a Product or Service Involves External

question 129

Multiple Choice

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by

• A)providing a subsidy to correct for an overallocation of resources.
• B)providing a subsidy to correct for an underallocation of resources.
• C)imposing a corrective tax to correct for an overallocation of resources.
• D)imposing a corrective tax to correct for an underallocation of resources.

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Definitions:

Elastic Demand

A situation in which the demand for a good or service is sensitive to price changes, characterized by the percentage change in demand being greater than the percentage change in price.

Total Expenditures

The overall amount of spending by an individual, firm, or government on goods and services.

Export Demand

The desire and willingness of foreign buyers to purchase goods and services from a country.

Domestic Demand

The total demand for goods and services within a country, including both consumer and business purchases.