Suppose That Cookie Producers Create a Positive Externality Equal to $2

question 55

Multiple Choice

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

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

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Definitions:

Response Variables

Variables that measure the outcome of a study or experiment, showing the effect of manipulations in predictor variables.

Multicollinearity

A situation where two or more independent variables in a multiple regression model show a high degree of correlation.

Regression Coefficients

Numerical values that represent the relationship between an independent variable and the dependent variable in a regression analysis.

Multicollinearity

A condition in regression analysis where two or more predictors are highly correlated, making it challenging to isolate the individual effect of each predictor on the dependent variable.