Suppose That Cookie Producers Create a Positive Externality Equal to $2

question 55

Multiple Choice

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

• A) The equilibrium quantity is greater than the socially optimal quantity.
• B) The equilibrium quantity is less than the socially optimal quantity.
• C) They are equal.
• D) There is not enough information to answer the question.

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Definitions:

Hub-And-Spoke

A system used in transportation and distribution in which all traffic moves along spokes connected to a central hub, optimizing efficiency.

Point-to-Point

A direct connection or travel route between two specific locations without any intermediate stops or transfers, commonly used in transportation and telecommunications.