When Production of a Good Generates External Benefits, the

question 26

Multiple Choice

When production of a good generates external benefits, the

• A) demand curve for the good will overstate the true social benefits from consumption of the good.
• B) demand curve for the good will understate the true social benefits from consumption of the good.
• C) supply curve for the good will overstate the true social cost of producing the good.
• D) supply curve for the good will understate the true social cost of producing the good.

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Definitions:

Marginal Product

The additional output that is generated by employing one more unit of a particular input.

Marginal Productivity Theory

An economic theory that posits that wages are determined by the marginal productivity of the laborer to the employer’s production.

Wage Disparities

The differences in wages or salaries between individuals or groups due to various factors such as occupation, experience, gender, or age.

Factor Markets

The markets for the inputs used in production, including labor, capital, land, and entrepreneurship.