Consider Two Goods - One That Generates External Benefits and Another

question 127

Multiple Choice

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

• A) result in a price that is lower than the efficient price for both goods.
• B) result in a price that is higher than the efficient price for both goods.
• C) result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost.
• D) result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

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Definitions:

Marginal Benefits

The incremental enjoyment or usefulness received from consuming or manufacturing another unit of a commodity or service.

Public Good

Products or services accessible to all people within society at no expense, made possible by the government or by private groups or individuals, not for the purpose of financial gain.

Bike Paths

Designated routes or tracks exclusively for bicycles, providing a safe space for cyclists away from motor vehicle traffic.

Public Good

Goods or services that are distributed to all individuals within a society without charge, presented by either public authorities or private entities, not for profit motives.