Which of the Following Statements Is TRUE

question 193

Multiple Choice

Which of the following statements is TRUE?
I. If an activity creates an external cost of $15, the government should subsidize the activity by $15.
II. Social surplus is maximized when the private marginal benefit equals the social cost.
III. External costs result in markets producing too much output.
IV. Someone pays external costs other than the producer or consumer.

• A) I and III only
• B) II, III, and IV only
• C) III only
• D) II and IV only

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Definitions:

Mental Set

A framework for thinking about a problem based on prior experience and perception, which can sometimes hinder the ability to see alternative solutions.

Problem-Solving Strategy

A method or process outlined to deal with a problem or overcome a challenge effectively.

Sequence of Operations

An order or series in which multiple steps or procedures are carried out to achieve a certain goal, often crucial for solving mathematical equations or programming algorithms.

Representativeness Heuristic

A cognitive heuristic wherein people judge probabilities or frequencies based on how much one scenario resembles another, leading to potential biases in decision making.