When a Good Causes Positive External Benefits to Accrue to Third

question 110

Multiple Choice

When a good causes positive external benefits to accrue to third parties, an unfettered market will

• A) under-allocate resources to the good causing the benefit.
• B) over-allocate resources to the good causing the benefit.
• C) cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently.
• D) eliminate such goods.

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Definitions:

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the total number of units produced.

Fixed Cost

refers to a business expense that remains constant regardless of the level of production or sales, such as rent or salaries.

Total Cost

The aggregate of every expense related to the creation of services or goods, taking into account both constant and fluctuating costs.

Average Total Cost

The total cost of production (fixed plus variable costs) divided by the total quantity produced, indicating the average cost per unit.