In the Presence of a Negative Externality Generated by Producing

question 49

True/False

In the presence of a negative externality generated by producing a good,a competitive market will produce more of that good than is socially optimal.

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity demanded for a given period.

Short-Run Equilibrium

Short-run equilibrium occurs when in a market, the quantity supplied equals the quantity demanded at the current price, before any long-term adjustments are made.

MR > MC

A situation in marginal analysis where the marginal revenue (MR) exceeds the marginal cost (MC), suggesting a potential increase in profitability by expanding production.

P > ATC

A scenario in which the price of a good is greater than the average total cost of producing that good, indicating potential profitability for the firm.