Suppose That Electricity Producers Create a Negative Externality Equal to $5

question 391

Multiple Choice

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

• A) They are equal.
• B) The after-tax equilibrium quantity is greater than the socially optimal quantity.
• C) The after-tax equilibrium quantity is less than the socially optimal quantity.
• D) There is not enough information to answer the question.

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Definitions:

Perception

The process of organizing and interpreting sensory information to give it meaning.

Decision

The act of making a choice among available alternatives.

Experiential System

A processing mechanism in the brain that is intuitive, automatic, and based on experiences, as opposed to analytical reasoning.

Cognitive System

encompasses the mental processes involved in perception, memory, judgment, and reasoning.