Use the Following to Answer Questions

question 10

Multiple Choice

Use the following to answer questions:
Figure: Market with External Cost
-(Figure: Market with External Cost) Suppose the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

• A) P₂.
• B) P₁ - P₀.
• C) P₀.
• D) P₂ - P₀.

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Definitions:

Comparative Advantage

A situation in which a person or country can produce a specific product at a lower opportunity cost than some other person or country; the basis for specialization and trade.

Utility-Maximizing

The economic principle that individuals or firms seek to get the greatest satisfaction or profit from their resource choices.

Utility

The satisfaction or benefit derived from consuming goods or services.

Consumer Wants

Desires or needs that individuals seek to satisfy through the purchase of goods or services.