If There Are Important Spillover Benefits from Consumption of a Good

question 3

Multiple Choice

If there are important spillover benefits from consumption of a good,

• A)​government should prohibit its production.
• B)​taxes should be imposed on producers of the product.
• C)​the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production.
• D)​the market demand curve for the good overstates the value of the product to society and resources are therefore overallocated to its production.

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Definitions:

Pyroclastic Eruption

A volcanic phenomenon involving the expulsion of hot gases, ash, and volcanic debris.

Dissolved Gas

Gases that are incorporated into magma and can expand, leading to explosive volcanic eruptions as pressure decreases.

Rhyolite

A mostly fine-grained, felsic igneous rock, generally of volcanic origin; can contain glass, volcanic ash, pieces of pumice, and variable amounts of visible crystals (phenocrysts).

Thermal Energy

The internal energy present in a system due to the random movements of its molecules or atoms.