When an External Cost Exists in the Production of a Good

question 260

Multiple Choice

When an external cost exists in the production of a good, firms tend to

• A) under-produce the good since society pays these costs.
• B) over-produce the good.
• C) keep production constant throughout the year.
• D) under-allocate resources to the production of the good.

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Definitions:

Economic Efficiency

The optimal use of resources to achieve the best possible output or outcome with minimal waste or expense.

Unpleasant Work

Jobs or tasks that are considered physically or emotionally uncomfortable, distressing, or dangerous.

Mainstream Economics

The body of economic thought considered orthodox or widely accepted, typically centered around the equilibrium between supply and demand.

Balancing Power

The act of equalizing influence or control among different groups or individuals, often in the context of labor relations.