It Is the Custom for Paper Mills Located Alongside the Layzee

question 87

Multiple Choice

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The above situation is an example of:

• A) an external economy.
• B) a spillover cost.
• C) the exclusion principle.
• D) a spillover benefit.

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Definitions:

Total Surplus

The total net gain for society derived from the creation and utilization of goods or services, calculated as the combined value of consumer and producer surplus.

Net Welfare Gain

The improvement in societal well-being, measured as the sum of consumer and producer surplus, arising from economic transactions or policy changes.

Perfect Competition

A market structure characterized by a large number of small firms, identical products, and easy entry and exit, which leads to firms being price takers.

Public Ownership

The case in which goods are supplied by the government or by a firm owned by the government to protect the interests of the consumer in response to natural monopoly.