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

question 12

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 equilibrium quantity and the socially optimal quantity of electricity to be produced?

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