Assume That the Production of a Good Imposes External Costs

question 112

Multiple Choice

Assume that the production of a good imposes external costs upon third parties. If the price and quantity of this good is set by supply and demand the price will be too:

• A) high and quantity too low for efficient resource allocation.
• B) low and quantity too low for efficient resource allocation.
• C) low and quantity too high for efficient resource allocation.
• D) high and quantity too high for efficient resource allocation.

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Definitions:

Outlay

The amount of money spent on a particular item or service, serving as expenses in financial transactions or projects.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choosing between options.

Capital

Economic resources that are used to create goods and services, such as buildings, machinery, and equipment.

Accounting Profit

Total revenue minus total explicit cost