In a Market with External Costs, Suppose the Efficient Level

question 235

Multiple Choice

In a market with external costs, suppose the efficient level of output is 1,000 units. Which statement is TRUE?

• A) To achieve the efficient level of output, the government should set a subsidy equal to the external cost.
• B) To achieve the efficient level of output, the government could set a tax equal to the external cost or issue enough tradable allowances to restrict the output to the efficient level.
• C) With external costs, the government can use only taxes to achieve the efficient level of output.
• D) With external costs, the government can use only tradable allowances to achieve the efficient level of output.

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Definitions:

Diurnal Isolation

Diurnal isolation is a form of reproductive isolation where species may share the same habitat but are active at different times of the day, thus preventing mating.

Sexual Isolation

A form of reproductive isolation where different species are unable to mate or produce fertile offspring due to behavioral or physical differences.

Habitat Isolation

A prezygotic reproductive isolating mechanism in which reproduction between similar species is prevented because they live and breed in different habitats.

Interbreed

To produce offspring by mating individuals of different species, breeds, varieties, etc.