Use the Following to Answer Question(s): Correcting for Market Failure

question 46

Multiple Choice

Use the following to answer question(s) : Correcting for Market Failure: External Cost

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved as illustrated in the Exhibit.When the government intervenes to correct for the external cost, the output will _______ from _______ to _______ .

• A) fall; W; R
• B) increase; W; R
• C) fall; R; W
• D) fall; W; 0

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Definitions:

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Economic Losses

Financial losses suffered by an individual or organization, often as a result of unfavorable business conditions or activities.

Price-Taker Market

A market condition in which individual buyers or sellers cannot influence the market price through their own actions.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the true profitability of a firm's operations.