Use the following to answer question(s): Correcting for Market Failure: External Cost

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.If the government intervenes to correct for the external cost, there will be a reduction in cost of :
A) WTUR.
B) WTVR.
C) TUV
D) UV

Question

Use the following to answer question(s): Correcting for Market Failure: External Cost
 
-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.If the government intervenes to correct for the external cost, there will be a reduction in cost of :
A) WTUR. 
B) WTVR. 
C) TUV 
D) UV

Quizplus · Accepted Answer

The government intervention will reduce the external cost, which will lead to a reduction in the cost of production for the firm. This will result in a reduction in the price of the good, which will lead to an increase in the quantity demanded. The increase in quantity demanded will lead to an increase in the total revenue of the firm, which will lead to an increase in the profit of the firm.

Use the Following to Answer Question(s): Correcting for Market Failure