When a Producer Does Not Internalize the Negative Externality Associated

question 6

Multiple Choice

When a producer does not internalize the negative externality associated with the production of a good,then:

• A)the socially optimal quantity of output must be larger than the market output.
• B)the socially optimal quantity of output must be less than the market output.
• C)the socially optimal quantity of output must be equal to the market output.
• D)the socially optimal quantity of output can be either larger or smaller than the market output.

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Definitions:

Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded, typically leading to lower prices.

Quantity Supplied

The amount of a commodity that producers are willing and able to sell at a particular price over a given period of time.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price point in a certain period.

Decrease

A reduction in quantity, size, or intensity of a particular entity or activity.