Suppose Good a Is a Public Good

question 34

Multiple Choice

Suppose good A is a public good.The marginal cost of providing 5 units of this good is $300.The marginal benefit derived from the consumption of 5 units by 3 individuals X,Y,and Z are $75,$125,and $100 respectively.Assuming that X,Y,and Z are the only consumers of good A,which of the following will hold true?

• A)Good A will be overproduced in the economy.
• B)Good A will be underproduced in the economy.
• C)Producing 5 units of A is efficient.
• D)More than 5 units of good A must be produced to make the outcome efficient.

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Definitions:

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (income, spending, etc.), indicating the percentage of total income or spending that is paid in taxes.

Marginal Tax Rate

The marginal tax rate is the rate at which the last dollar of income is taxed, reflecting the proportion of additional income that is paid in taxes.

Progressive Tax

A tax system where the tax rate increases as the taxable amount or income goes up, making it proportionately higher for wealthier individuals or entities.

Individual Income

The total earnings received by an individual from all sources, including wages, investments, and other forms of compensation.