Suppose That Candy Producers Create a Positive Externality Equal to $1

question 110

Multiple Choice

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

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

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Definitions:

Validity Rules

The criteria or guidelines used to determine whether an argument is logically consistent and its conclusions follow from its premises.

Validity Rules

The principles or criteria used to evaluate the soundness of an argument or reasoning process, ensuring that if the premises are true, the conclusion must also be true.

Categorical Proposition

A statement relating two classes or categories, asserting that all, some, or none of the members of one class are included in another.

Major Premise

In a syllogism, the first proposition which asserts a general principle.