Question

New "green belt" areas have been created to beautify the grounds around Tampa Power and Light Company. The green cover has created an external benefit for the citizens of Tampa. To incorporate the cost of this benefit, an economically efficient allocation of resources would result in an increase in the price of the firm’s output. a decrease in the price of the firm’s output. a decrease in the quantity of the firm’s output. a decrease in the price and an increase in the quantity of the firm’s output. no change in the price or the quantity.

Answer 1

Answer:

The correct answer is letter "A": an increase in the price of the firm’s output.

Explanation:

Externalities are costs paid by individuals who are not involved in causing it. The typical example of an externality is a company's pollution. Governments set regulations and penalties to corporations provoking pollution but to mitigate those costs the fined entities rise the price of their products. Thus, eventually, the consumer is the affected of the situation.

However, externalities can be positive. Just like in the example, the green cover of Tampa Power and Light Company benefits Tampa citizens. To incorporate the cost of this benefit will imply rising the price of the firm's output (electricity) so resources can be efficiently allocated.