Suppose That Production of a Good Creates a Negative Externality

question 55

True/False

Suppose that production of a good creates a negative externality.An excise tax equivalent to the difference between the marginal social cost and the marginal private cost of production can correct the inefficiency.

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Definitions:

Non-price Factors

Variables other than price that affect the demand and supply of goods and services, such as consumer preferences, income, and technology.

Price Ceiling

A legal maximum price that can be charged for a good or service, intended to protect consumers from high prices.

Quantity Supplied

Quantity supplied refers to the total amount of a good or service that producers are willing and able to sell at a given price over a specific time period.

Price Ceiling

A legal maximum price that can be charged for a good or service, set by government regulation.