It Is True of Externalities That They

question 146

Multiple Choice

It is true of externalities that they

• A)arise when all costs, social and private, are included in production cost.
• B)are always beneficial.
• C)are always detrimental.
• D)None of the above are correct.

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Definitions:

External Cost

A cost borne by someone who does not participate in the transaction or decision that led to the cost, often associated with negative externalities.

Total Surplus

The sum of consumer and producer surplus in a market, indicating the overall economic benefit to society from market transactions.

Socially Efficient

An economic condition where the allocation of resources maximizes social welfare, often where marginal cost meets marginal benefit.

Negative Externalities

Costs that are suffered by a third party as a result of an economic transaction or activity, for which they are not compensated.