Suppose That Electricity Producers Create a Negative Externality Equal to $5

question 400

Multiple Choice

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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

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Definitions:

Oil Refineries

Industrial processing plants where crude oil is transformed and refined into more useful petroleum products such as gasoline, diesel, and jet fuels.

Floating Exchange Rate

a currency valuation system that allows the value of the currency to fluctuate according to the foreign exchange market.

Indirect Actions

Measures or activities that are not directly implemented but influence outcomes through intermediaries or other indirect means.

Currency Exchange

The act of converting one country's currency into another's, a key component in international trade and investment activities.