If the Production of a Product Results in Significant External

question 235

Multiple Choice

If the production of a product results in significant external costs, an appropriate government policy might be to

• A) subsidize the production of the good.
• B) tax producers and thus shift the supply curve to the left.
• C) tax consumers' incomes and thus shift the demand curve to the left.
• D) subsidize consumers since the good is being under-consumed.

---

Definitions:

Consuming One More Unit

The action or decision of using up an additional unit of a good or service and its impact, often related to marginal utility.

Budget Line

A graphical representation that shows all possible combinations of two goods that an individual can afford given their income and the prices of the goods.

Consumer Income

The total money earned by consumers from all sources, including wages, salaries, investments, and benefits, which impacts their purchasing power.

Price

The amount of money required to purchase a good or service, determined by factors such as supply and demand, production costs, and market competition.