Question

An industry with production that generates external costs produces a quantity of output that is: A. socially optimal if a specific subsidy is given to buyers. B. socially optimal. C. larger than the socially optimal quantity. D. smaller than the socially optimal quantity.

Answer 1

Answer:

Option c: larger than the socially optimal quantity.

Explanation:

External costs do sometimes happens in the production and the consumption of a good or service. An example of an external cost in production is a chemical firm polluting a river with its waste.

external costs are simply negative externalities and external benefits are positive externalities.

Externalities are simply known as indirect costs and benefits which are external to an exchange. They are also third party effects ignored by the price mechanism.