An Appropriate Way for Government to Intervene When External Diseconomies

question 26

Multiple Choice

An appropriate way for government to intervene when external diseconomies exist in an industry is to

• A) shift the industry demand curve to the right by subsidizing consumers.
• B) shift the industry supply curve to the left by taxing producers.
• C) subsidize the industry to raise its profits.
• D) encourage imports of the good to replace domestic production.
• E) make the industry's supply curve more nearly reflect the supply curve of a competitive industry.

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Definitions:

Short Run

A period in economic analysis during which at least one input is fixed, limiting the ability of firms to adjust to changes in market conditions.

Marginal Product

The growth in production resulting from one more unit of input, while keeping all other inputs the same.

Total Product

The aggregate amount of goods or services generated by a business given a specific amount of resources.

Diminishing Rate

A principle stating that if one factor of production is increased while others are held constant, the incremental gains in output will eventually decrease.