Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:
a. large and a price that is too high. b. large and a price that is too low.
c. small and a price that is too high. d. small and a price that is too low.
Question 2
Which of the following is the best example of an action that imposes an external cost?
a. Wear and tear on your car as the result of frequent use.
b. Deterioration in the average quality of a house you own as the result of poor maintenance.
c. Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents.
d. A rose garden on your property from which your neighbor gets much enjoyment.
