When a Production Quota Is Used to Remedy the Problem

question 20

Multiple Choice

When a production quota is used to remedy the problem of the commons, then

• A) the market equilibrium, but not the efficient outcome, is achieved.
• B) the production quota is set so that use of the resource is where marginal social benefit equals marginal private cost.
• C) all users of the resource have an incentive to cheat on the quota quantity.
• D) the production quota is set so that use of the resource is where marginal private benefit equals marginal private cost.

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Definitions:

Accounts Payable

The amount of money owed by a company to its creditors for goods and services purchased on credit, typically due within a short period of time.

Equivalent Annual Cost

A cost calculation method that is used to compare the cost effectiveness of different investments or projects with different lifespans.

Tax Shield

A deduction allowed by the tax laws to reduce taxable income, thus lowering the overall taxes owed by an individual or an organization.

Mutually Exclusive

Two events that cannot happen at the same time, requiring a choice to be made between them.