Consider a Product That Generates Positive Externalities When It Is

question 46

Multiple Choice

Consider a product that generates positive externalities when it is consumed. In this case,

• A) firms will produce too little of this product unless they internalize the external benefits.
• B) at the market equilibrium, the price is too high to be allocatively efficient.
• C) the government could tax the production of this good to improve efficiency.
• D) at the market equilibrium, the output would be greater than the socially optimal amount.
• E) at market equilibrium, the marginal social benefit is less than the marginal cost of producing the last unit.

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Definitions:

Gross Amount

The total sum before any deductions are made, such as taxes, discounts, or expenses.

Price Escalation

An increase in the price of products or services over time, often due to factors such as inflation or increased costs of materials.

Firm-Fixed-Price

A type of contract where the price agreed upon is not subject to any adjustments based on the cost experience of the supplier or service provider.

Substantial Chance

A significant opportunity or probability of occurrences that can have considerable effects or outcomes.