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.

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Definitions:

Inherently Dangerous Activity

An activity that carries an inherent risk of harm or damage, even when all possible care is taken to prevent that harm.

Liability

The legal responsibility to settle a debt or fulfill an obligation, potentially involving payment for damages in legal cases.

Employer

An individual or organization that hires and pays individuals to perform services or work.

Escape

The act of breaking free from confinement or restraint, often used in the context of escaping from prison or custody.