When Producing a Good Generates External or Negative Externalities, the Private

question 3

Multiple Choice

When producing a good generates external or negative externalities, the private market for that good tends to produce too:

• A)much of the product at too low a price.
• B)much of the product at too high a price.
• C)little of the product at too low a price.
• D)little of the product at too high a price

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Definitions:

Business Firm

A Business Firm is an organization engaged in commercial, industrial, or professional activities with the aim of generating profits.

Drawing Account

An account used to record withdrawals made by a company’s owner for personal use, which is then deducted from the company’s capital.

Owner's Capital Account

Represents the total equity or net worth of an individual owner in a company, detailing the contributions, earnings, and withdrawals of the owner.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to the net income or loss for the period.