Public Regulation Is Often an Effective Means of Dealing with an Externality

question 98

Multiple Choice

Public regulation is often an effective means of dealing with an externality when

• A)property rights are not well- defined
• B)transaction costs of private contracts are high
• C)private contracts are not Pareto optimal
• D)Government officials have superior knowledge

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Definitions:

Industry Exit

The process of firms leaving a market or ceasing production in a particular industry, often due to unfavourable market conditions, regulatory changes, or strategic re-alignments.

Markup

The amount added to the cost price of goods to cover overhead and profit; the difference between the cost of a product and its selling price.

Marginal Cost

Marginal cost is the change in the total cost that arises when the quantity produced changes by one unit.

Profit-Maximizing

A strategy where a business aims to achieve the highest possible profit from its operations.