When a Good Causes Positive External Benefits to Accrue to Third

question 110

Multiple Choice

When a good causes positive external benefits to accrue to third parties, an unfettered market will

• A) under-allocate resources to the good causing the benefit.
• B) over-allocate resources to the good causing the benefit.
• C) cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently.
• D) eliminate such goods.

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Definitions:

Expected Value

In statistics and probability theory, the average result of a random variable, computed as the weighted average of all possible values.

Expected Utility

A theory in economics that assesses options under uncertainty, predicting choices that maximize utility based on expected outcomes.

Marginal Utility

The added satisfaction that a consumer gains from consuming one more unit of a good or service.

Risk-averse

A characteristic of individuals or entities that prefer to avoid risk in investment choices, opting for safer, less uncertain options.