A Negative Externality Occurs When the Purchase of a Product

question 69

Multiple Choice

A negative externality occurs when the purchase of a product

• A)causes the seller of the product to lose profits.
• B)increases market competition.
• C)causes the government to lose tax revenues.
• D)adversely affects the well-being of an individual outside of the market.
• E)causes a lower market price.

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Definitions:

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for competition primarily through product differentiation.

Cournot Equilibrium

A situation in an oligopoly in which each company chooses its production level assuming the output of its competitors, resulting in a stable market output.

Collusion

An agreement between firms to limit competition, set prices, or divide markets, which usually distorts the outcomes of a free market.

Marginal Revenue

Marginal Revenue is the additional income acquired from selling one more unit of a product or service, crucial for determining optimal production levels.