Suppose That Planting Trees Creates a Positive Externality Equal to $25

question 196

Multiple Choice

Suppose that planting trees creates a positive externality equal to $25 per tree.Further suppose that the local government offers a $25 per-tree subsidy to planters.What is the relationship between the equilibrium quantity and the socially optimal quantity of trees planted?

• A) The equilibrium quantity is less than the socially optimal quantity.
• B) The equilibrium quantity is greater than the socially optimal quantity.
• C) They are equal.
• D) There is not enough information to answer the question.

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Definitions:

Correlated

Describes the relationship between two variables where changes in one variable are associated with changes in another.

Null Hypothesis

A hypothesis that suggests there is no statistical significance in a set of given observations, implying no effect or relationship.

Linear Relationship

A relationship between two variables where the change in one variable is directly proportional to the change in another variable.

Pearson Correlation

A statistical measure that calculates the strength and direction of a linear relationship between two quantitative variables.