When Producing a Good Creates Pollution, an External Cost, and the Government

question 93

Multiple Choice

When producing a good creates pollution, an external cost, and the government imposes a tax equal to the marginal external cost, then

• A) the amount of output moves farther away from the efficient amount.
• B) transaction costs will be high.
• C) the efficient amount of the good will be produced.
• D) property rights must have already been established.

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Definitions:

Context Effects

The influence of environmental factors on one's perception or understanding of a stimulus.

Perceptual Set

A readiness to perceive or interpret stimuli in a particular way based on expectations, experiences, emotions, and culture.

Weber's Law

A principle stating that the smallest change in a physical stimulus that can be detected is a constant proportion of the stimulus level.

Masking Stimulus

A stimulus used to interfere with the perception of another stimulus, often used in research to study attention and perception processes.