Scenario: the Production of a Good Creates a Negative Externality

question 82

Multiple Choice

Scenario: The production of a good creates a negative externality. The following figure shows the market for this good.

-Refer to the scenario above.To restore the socially optimal outcome in this market,the government should ________.

• A) levy a $6 tax per unit on this good
• B) levy a $10 tax per unit on this good
• C) pay a $6 subsidy per unit on this good
• D) not intervene in the market, as the market will provide the socially optimal outcome by itself

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Definitions:

Abraham Maslow

An American psychologist best known for creating Maslow's hierarchy of needs, a theory of psychological health predicated on fulfilling innate human needs.

Sensation Seeker

Someone who needs more arousal than the average person.

Arousal

A physiological and psychological state of being awake or reactive to stimuli, often associated with increased cognitive activity and physical readiness.

Self-actualization

Fulfilling one's capabilities and realizing personal potential, regarded as an essential urge or demand within each person.