When the Production of a Good Creates an External Cost

question 112

Multiple Choice

When the production of a good creates an external cost, one method of achieving the efficient allocation is to impose a tax such that

• A) MC + tax = MSC.
• B) MB + tax = MSC.
• C) MB - tax = MSB.
• D) MC - tax = MSB.

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Definitions:

Price

The amount of funds expected, essential, or submitted in reimbursement for something.

Apples

A type of fruit that is grown on apple trees, known for its sweet taste and nutritional benefits, often consumed fresh or used in various dishes.

Bananas

Commonly refers to a type of fruit, but in economic terms, it could relate to the market dynamics or trade aspects of agricultural products.

Budget Line

A graphical representation of all possible combinations of two goods that an individual can afford given the prices of the goods and the individual's income.