In a Market with External Costs, Suppose the Efficient Level

question 64

Multiple Choice

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

• 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.(True
• Answer )Correct
• 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:

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Inflammation of the iris, the colored part of the eye, which can lead to pain, light sensitivity, and vision problems.