Compared to Ideal Economic Efficiency, When the Production of a Good

question 21

Multiple Choice

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

• A) large and a price that is too high.
• B) large and a price that is too low.
• C) small and a price that is too high.
• D) small and a price that is too low.

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Definitions:

Benefits Accrue

The accumulation of advantages or positive results over time from an action or investment.

Purely Competitive

A market structure characterized by many participants offering identical products, where no single buyer or seller can influence the market price.

Economic Profits

The excess of total revenue over total costs, including both explicit and implicit costs, as calculated in economic theory.

Normal Profits

The minimum level of profit necessary for a company to remain competitive in the market, essentially covering opportunity costs but not generating excess profit.