Question

When the production of a good generates external costs, a firm’s private supply curve will be:a. to the right of the social supply curve. b. to the left of the social supply curve. c. vertical. d. horizontal.

Answer 1

Answer:

Letter a is correct. To the right of the social supply curve.

Explanation:

In this situation, we can say that the correct alternative is that the company's supply curve will be to the right of the social supply curve. For when there is an external cost of producing a good, it means that there is a cost committed by third parties, that is, this cost has no direct relation to the production process of the good, but it can be said that the production of the organization goes beyond ideal social level of production, which causes an externality, as there are consequences for third parties on a decision which they did not participate in.