What is the effect of an unaddressed negative externality on the market quantity produced?

Multiple choice question for Externality & Internality. Select an option, then review the explanation below.

Show Answers

The efficient quantity surpasses the market equilibrium quantity.The market quantity may be greater or less than the efficient quantity.The market quantity matches the efficient quantity exactly.The market quantity is higher than the efficient quantity.None of the above.

Explanation

When a negative externality is not accounted for, the market tends to produce more than the socially optimal amount, causing the equilibrium quantity to be greater than the efficient quantity.

Practice related questions from the same subject.

1.What is the primary function of tradable pollution permits?
2.The gas-guzzler tax imposed on new vehicles with poor fuel efficiency serves as an example of which economic concept?
3.Roberto and Thomas share a university dorm room. Roberto enjoys playing loud music, valuing it at €100, while Thomas prefers silence, valuing peace at €150. Assuming Roberto has the legal right to play loud music and there are no costs involved in negotiation, which of the following best describes an efficient outcome to this externality issue?
4.Which of the following is not classified as a transaction cost borne by parties when negotiating to address a pollution externality?
5.According to the Coase theorem, under what condition can private individuals effectively resolve externality issues?

What is the effect of an unaddressed negative externality on the market quantity produced?

Explanation

More Externality &amp; Internality MCQs

More Externality & Internality MCQs