Assume the Production of a Good Causes a Negative Externality

question 39

Multiple Choice

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

• A)less than the social cost of producing it.
• B)less than the private cost of producing it.
• C)more than the social cost of producing it.
• D)more than the private cost of producing it.

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Definitions:

Producer Surplus

The difference between the amount a producer is willing to accept for a good and the actual amount received due to higher market price.

Consumer Surplus

The discrepancy between the potential total expenditure consumers are willing to make on a good or service and the actual costs they incur.

Government Revenue

The total income received by the government from various sources, including taxes, fees, fines, and the sale of goods and services.

Domestic Demand Curve

A graphical representation of the quantity of goods and services demanded by domestic consumers at various price levels.