When the Government Bans a Good

question 92

Multiple Choice

When the government bans a good:

• A) it is attempting to solve the nonexcludability problem.
• B) it makes acquiring that good illegal.
• C) the cost of breaking the ban changes the trade-offs consumers face.
• D) All of these statements are true.

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Definitions:

Willingness to Pay

The maximum amount a consumer is ready to spend for a good or service.

Surplus

The situation where the quantity supplied of a product exceeds the quantity demanded at a given price.

Negative Externality

An economic situation where a third party is negatively affected by the actions of others, typically not reflected in the cost of those actions, such as pollution.

Common-Resource Problem

A dilemma in the management of resources that are available to all but are susceptible to overuse and depletion because they are not excludable.