In a Market with External Costs, Suppose the Efficient Level

question 16

Multiple Choice

In a market with external costs, suppose the efficient level of output is 1,000 units. Which of the following statements is TRUE?

• A) To achieve the efficient level of output, the government should set a subsidy equal to the external cost.
• B) To achieve the efficient level of output the government could set a tax equal to the external cost or issue enough tradeable allowances to restrict the output to the efficient level.
• C) With external costs, the government can use only taxes to achieve the efficient level of output.
• D) With external costs, the government can use only tradeable allowances to achieve the efficient level of output.

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Definitions:

Choroid

A vascular layer of the eye located between the sclera and the retina, which provides oxygen and nutrients to the outer retina.

Cornea

The clear, outer layer at the front of the eye that helps focus incoming light onto the retina.

Golgi Tendon Organs

Sensory receptors located at the junction of muscles and tendons that monitor tension developed in muscles.

Proprioceptors

Proprioceptors are sensory receptors located in muscles, tendons, and joints that help to convey information about body position and movement.