Suppose That Flower Gardens Create a Positive Externality Equal to $1

question 190

Multiple Choice

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

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

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Definitions:

Seller

An individual or entity that is offering a product or service for sale.

Forward Contract

A customizable financial contract between two parties to buy or sell an asset at a specified future time at a price agreed upon at the moment of the contract’s initiation.

Settlement Price

The settlement price is the official price at the end of a trading session on futures exchanges, used for calculations of account margins.

Zero-Sum Game

A situation in which one participant's gain or loss is exactly balanced by the losses or gains of the other participants.