When a Negative Externality Is Present in a Market,total Surplus

question 56

Multiple Choice

When a negative externality is present in a market,total surplus is:

• A) higher when buyers only consider private costs.
• B) lower when buyers only consider private costs.
• C) lower when buyers consider social costs.
• D) None of these statements is true.

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Definitions:

Firm

A business organization, such as a corporation, partnership, or sole proprietorship, that sells goods or services to make a profit.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, representing the additional gain beyond the normal profit level.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own production rather than earning income elsewhere.

Accounting Profits

The net income reported on the financial statements of a company, calculated as total revenues minus explicit costs and depreciation.