Refer to the Figure Below

question 126

Multiple Choice

Refer to the figure below. This graph describes a good that:

• A)generates positive externalities.
• B)should be banned.
• C)generates negative externalities.
• D)the government should subsidize.

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Definitions:

Demand Heterogeneity

Describes the variation in consumers' preferences and needs, which can influence the market strategy of businesses.

Government Failure

Occurs when government intervention in the economy causes inefficiencies or leads to an allocation of resources that does not maximize societal welfare.

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.

Externality

A consequence of an economic activity experienced by unrelated third parties; can be either positive or negative.