In the Presence of a Negative Production Externality, _____

question 58

Multiple Choice

In the presence of a negative production externality, _____.

• A)the private cost of a good exceeds the private marginal benefit from the good
• B)the private benefit from a good exceeds the private marginal cost of the good
• C)the social cost exceeds the private cost of a good
• D)the social marginal cost is less than the private marginal cost of a good
• E)the private cost of a good is less than the private marginal benefit from the good

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Definitions:

Optimal Level

The most efficient, effective, or desirable point or state for a specific objective or condition.

Shift

Movement of a supply or demand curve on a graph, indicating a change in equilibrium quantity and/or price in the market.

Subsidy

Financial support extended by the government to a sector, industry, or individual, intended to promote economic and social policy objectives.

Negative Externality

A cost imposed without compensation on third parties by the production or consumption of sellers or buyers. Example: A manufacturer dumps toxic chemicals into a river, killing fish prized by sports fishers. Also known as an external cost or a spillover cost.