Use the Following to Answer Questions

question 156

Multiple Choice

Use the following to answer questions:
Figure: Correcting for Market Failure
-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. If the government forces the private-sector firms to face the external cost:

• A) the supply curve shifts to the right, from S₂ to S₁.
• B) the supply curve shifts to the left, from S₁ to S₂.
• C) the supply curve is unaffected.
• D) price per unit decreases.

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Definitions:

Optimal Extraction Level

The point at which the rate of resource extraction maximizes the value derived from the resource without depleting it beyond recovery.

Extraction Costs

The expenses associated with removing natural resources from the earth, such as mining for metals or drilling for oil.

User Costs

The cost of using a product or service, not just its purchase price but including maintenance, operating, and opportunity costs.

Renewable Resources

Natural resources that can be replenished over short periods of time, such as solar energy, wind, and biomass.