Asked by Duval Demps on Jun 28, 2024
Verified
Refer to Scenario 10-1. From the given information, it is apparent that
A) the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
B) the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.
C) the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
D) the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.
Negative Externality
A cost that is suffered by a third party due to an economic transaction or activity.
Production
The act of merging diverse physical and non-physical inputs (including blueprints and skills) to produce goods for consumption.
Gasoline
A liquid fuel derived from petroleum, primarily used to power internal combustion engines in vehicles.
- Acquire an understanding of externalities and their influence on the efficiency of markets.
Verified Answer
ZK
Zybrea KnightJul 03, 2024
Final Answer :
B
Explanation :
The production of gasoline involves a negative externality because the social cost ($3.12) is higher than the private cost ($2.83). This means the market will produce more gasoline than is socially desirable, as it does not account for the external costs.
Learning Objectives
- Acquire an understanding of externalities and their influence on the efficiency of markets.
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