When the Production of a Good Creates an External Cost

question 264

Multiple Choice

When the production of a good creates an external cost, by setting the tax rate equal to the ________, firms can be made to behave in the same way as they would if they bore the cost of the externality directly.

• A) marginal external cost
• B) marginal social benefit
• C) marginal private benefit
• D) marginal social cost

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Definitions:

Afferent Neurons

Nerve cells that carry sensory information from the body's periphery to the central nervous system.

Stretch Reflex

A muscle contraction in response to stretching within the muscle, serving as a protective mechanism to prevent overstretching.

Golgi Tendon Reflex

A protective reflex mechanism that helps prevent muscle damage by causing muscle relaxation before muscle force becomes too extreme.

Muscle Spindle

A sensory receptor located within muscle, which detects changes in muscle length and tension.