Is reduced at a lower cost than if the government set

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is reduced at a lower cost than if the government set pollution standards that each firm was required tofollow.PTS:1DIF:DifficultNAT:AnalyticLOC:Markets, market failure, and externalities44.ANS:It is only when there are no externalities that the socially optimal output is the same as the market output.If a negative externality exists, the socially optimal output will be less than the market output (which failsto take into account the social costs imposed by the externality). If a positive externality exists, thesocially optimal output will be greater than the market output (which fails to take into account the socialbenefits created by the externality).PTS:1DIF:ModerateNAT:AnalyticLOC:Markets, market failure, and externalities
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Term
Fall
Professor
NoProfessor
Tags
Externality, Nonexcludable Public Goods

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