Determine whether the statements are true or false. 1. At the socially optimal q

Question

Determine whether the statements are true or false.

1. At the socially optimal quantity, there are no costs associated with the negative externality.

2. In an unregulated market with a negative production externality, the competitive market price is higher than the socially optimal price.

3. Producers in a regulated market with a negative externality that are producing the socially optimal quantity, are better off that producers producing a quantity at the competitive equilibrium.

4. In the absence of government intervention, abatement levels will be at a level where MC of abatement is equal to MB of abatement.

Explanation / Answer

1) The answer is TRUE.

becasue, at socially optimal quantity, all negative and positive externality are taken into account. therefore, at socially optimal quantity, there will be mo megative exterality.

2) The answer is FALSE.

becuase, at socially optimal quantity, the price is generelly high with negative externality than the competitive market price.

3) THe answer is FALSE.

becaause, at social optimal quantity with a negative externality, the price recieved by a producer is less and quantity produced by a producer is also less.

4) The answer is TRUE

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