An externality a

1. An externality c. is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service .

It is because externality is the outcome of one party which affects another party whether it is positive or negative and the other party is not involved in that event.

2. Externalities can be produced by a. the high price of goods and services individuals .

It is because the goods contain higher prices which are affordable by some people while some people cannot afford those goods. As a result, society suffers due to its huge private cost which enables the inefficient distribution of goods and services in the market.

3. When an external cost exists that is NOT taken into account in the production of a product a. the level of output is too high, and the supply curve should shift to the left to account for the externality .

It is because without the consideration of external cost, the market is attaining its equilibrium and after imposition of the external cost into the production of goods and services, the supply curve would shift leftward which implies the higher price of the product with a lower level of output.

4. Which of the following is correct c. MSC = MPC + MD .

It is because MD stands for the marginal damage curve and the marginal social cost is greater than marginal private cost due to the existence of externalities. Hence, the marginal social cost is the sum of marginal private cost and the marginal damage curve.

5. If external costs (costs of cleaning up) are included and added to a firm's private costs, then d. the supply curve will shift to the left .

It is because the existence of external cost raises the cost of producing output which would reduce the profit margins of the firms. Hence, the supply curve would get shifted towards the left.

6. The Coase theorem states that c. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities .

It is because in the Coase theorem, it is clearly stated that there is no allocation of property rights, but still both the parties would be able to reach the Pareto efficient solutions when externalities would be present.

7. Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to d. the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo .

It is because of the greater value of buffaloes enables people to extract more output from the buffaloes. Therefore, the number of buffaloes started falling.

8. In theory, the Emissions Fee would c. cause firms to generate more pollution than their allowed limits .

It is because emissions fee acts as a tax on the pollution, which allows them to create pollution more than the specified limits by the government. The firms have to bear the cost of additional pollution raised by them.

9. A cap-and-trade policy d. all of the above .

It is because the cap and trade policy is designed to reduce the pollution which is caused by many power plans while producing goods and services.

10. A Pigouvian tax corrects for d. low market prices .

It is because the Pigouvian tax refers to the tax which is placed on the outcomes due to the generation of a negative externality.