A negative externality (that has not been internalized) causes the ?
Correct answer: D. equilibrium quantity to exceed the optimal quantity
- A. optimal quantity to exceed the equilibrium quantity.
- B. equilibrium quantity to be either above or below the optimal quantity
- C. equilibrium quantity to equal the optimal quantity
- D. equilibrium quantity to exceed the optimal quantity
Explanation
A negative externality makes social marginal cost greater than private marginal cost, so the unregulated market produces more than the socially efficient quantity. Therefore, equilibrium quantity exceeds optimal quantity.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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