When Government Makes It Possible to Externalize the Cost of a Good

question 295

Multiple Choice

When government makes it possible to externalize the cost of a good:

• A) there will be an optimal quantity of the good.
• B) there will be an insufficient quantity of the good.
• C) there will be too much of the good.
• D) the good will not be produced at all.

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Definitions:

Competitive Industry

An industry characterized by many firms, differentiated products, and free entry and exit, leading to intense competition.

Elastic Demand

A situation where the demand for a product or service significantly changes in response to price changes.

Close Substitutes

Products or services that can serve the same purpose or function, making them easily replaceable with one another in consumption or use.

Pollution Laws

Legislation that sets limits on the emission of pollutants into the environment, aiming to protect air and water quality.