When an External Cost Exists in the Production of a Good

question 260

Multiple Choice

When an external cost exists in the production of a good, firms tend to

• A) under-produce the good since society pays these costs.
• B) over-produce the good.
• C) keep production constant throughout the year.
• D) under-allocate resources to the production of the good.

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Definitions:

Norms

Shared expectations or rules that guide behavior within a group or society.

Conformity

The action of aligning one's attitudes, beliefs, or behaviors to match those of a group or societal norms, often due to real or perceived social pressure.

Asch's Studies

A series of experiments conducted by Solomon Asch examining how peer pressure to conform would influence an individual's judgment.

Group Pressure

The influence exerted by a group on individual members to make them conform to the group's standards, norms, or actions.