When the Consumption of a Good Generates an External Benefit

question 114

Multiple Choice

When the consumption of a good generates an external benefit,

• A) the private benefit consumers receive from the good will be higher than the true social benefit.
• B) too much of the good will tend to be produced from the viewpoint of economic efficiency.
• C) the community generally suffers an exactly offsetting external cost from the production of the good.
• D) the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

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Definitions:

Administrative Expenses

Costs related to the general operation of a company, including expenses such as salaries of executive officers and costs of general services.

Variable

An element or factor that can change or vary, affecting the outcome of mathematical models, experiments, or financial projections.

Fixed

Pertaining to costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

Mixed

Pertaining to costs or variables that have both fixed and variable components, changing with the level of activity but not directly proportional to it.