The Greater the Magnitude of the External Costs of Production

question 138

Multiple Choice

The greater the magnitude of the external costs of production,

• A)​The larger is the deadweight loss from overproduction.
• B)​The greater would be the optimal pollution tax.
• C)​The further the private market solution ignoring those costs would deviate from the socially efficient level of output.
• D)​All of the above are true.

---

Definitions:

Market Equilibrium

A state in which market supply and demand balance each other, and, as a result, prices become stable.

Competitive Industry

A sector characterized by many participants striving to offer better products or services than their rivals.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Market Equilibrium

A situation in a market where the quantity of a good or service supplied matches the quantity demanded, leading to a stable price.