When a quota is imposed on a market with a negative externality, the market is:
A)efficient, because consumption occurs at the efficient level.
B)not efficient, because the net benefits individuals receive from the amount set by the quota are different.
C)efficient, because the net benefits individuals receive from the amount set by the quota are equal.
D)not efficient, because the marginal cost outweighs the marginal benefit for too many consumers.

Question

Quizplus · Accepted Answer

The quota creates a shortage, which drives up the price and reduces consumption. This reduces the negative externality, but it also makes the market inefficient because the marginal cost of production is now higher than the marginal benefit to consumers.

When a Quota Is Imposed on a Market with a Negative