In the Presence of a Negative Externality

question 21

Multiple Choice

In the presence of a negative externality

• A) there is an overallocation of resources to production
• B) the competitive equilibrium will not achieve an allocatively efficient solution
• C) MSC exceeds MSB at the competitive output level
• D) all of the above
• E) (a) and (b) only

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Definitions:

Production Function

A mathematical model that describes the relationship between inputs used in production and the output generated from those inputs.

Marginal Product

The increase in output that results from a one-unit increase in the input of a particular resource, holding all other inputs constant.

Factor X

A hypothetical or unspecified factor in an equation, model, or situation that has an impact on the outcome but is not explicitly defined.

Production Function

An equation that describes the maximum output that can be obtained from a given set of inputs.