External Costs Lead Markets to Produce a Smaller Quantity of a Good

question 72

True/False

External costs lead markets to produce a smaller quantity of a good than is socially desirable, while external benefits lead markets to produce a larger quantity of a good than is socially desirable.

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Definitions:

Long Run

A period in which all factors of production and costs are variable, allowing for full adjustment to changes in the economic environment.

Specialization

The process of focusing effort and resources on a limited number of activities, goods, or services to gain a comparative advantage in production.

Decreasing Returns To Scale

Long-run average total cost increases as output increases (also known as diseconomies of scale).

Economies Of Scale

The cost advantages that enterprises obtain due to their scale of operation, typically resulting in cost per unit of output decreasing with increasing scale.