If the Production of a Good Creates Large Spillover Benefits

question 208

Multiple Choice

If the production of a good creates large spillover benefits on others, the government might correct for the:

• A)​overallocation of resources to its production by subsidizing it.
• B)​overallocation of resources to its production by imposing a tax on it.
• C)​underallocation of resources to its production by subsidizing it.
• D)​underallocation of resources to its production by imposing a tax on it.

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Definitions:

Income

The total money received by an individual or household from various sources like wages, investments, and benefits, over a specified period, often used to fund expenditures.

Price

The price one must pay to obtain a good, service, or asset.

Claret

A term often used in Britain to refer to red Bordeaux wine.

Utility Function

A representation of how individual preferences are ranked for different bundles of goods.