Suppose That Electricity Producers Create a Negative Externality Equal to $5

question 16

Multiple Choice

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

• A)They are equal.
• B)The after-tax equilibrium quantity is greater than the socially optimal quantity.
• C)The after-tax equilibrium quantity is less than the socially optimal quantity.
• D)There is not enough information to answer the question.

---

Definitions:

Preconscious

Refers to thoughts or feelings that are not immediately in one's conscious awareness but can be easily accessed.

Defence Mechanism

Unconscious mental tactics employed to shield oneself from the distress caused by thoughts or feelings that are deemed unacceptable.

Rationalization

A defense mechanism in which controversial behaviors or feelings are justified and explained in a seemingly rational or logical manner to avoid the true explanation.

Projection

A defense mechanism where an individual attributes their own unacceptable thoughts, feelings, or motives to someone else.