The Efficient Quantity of Output of a Product with External

question 347

Multiple Choice

The efficient quantity of output of a product with external costs of production is

• A) where the demand curve and the producer's supply curve intersect.
• B) where the marginal social cost curve and marginal social benefit curve intersect.
• C) as low as possible.
• D) zero.

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Definitions:

Excess Burden

The cost to society created by market inefficiency, mainly due to taxes or government policies, that causes a deviation from an optimal allocation of resources.

Mutually Beneficial Exchanges

Transactions that provide benefits to all parties involved, ensuring a win-win situation.

Excise Tax

A tax levied on specific goods, services, or transactions, often aimed at discouraging their use or raising revenue.

Relative Burden

A measure of the comparative impact or weight of a specific demand, typically financial, on different entities or groups.