If there is a negative externality involved in producing good X, then
A)the production possibility curve will be too steeply sloped toward good X.
B)a subsidy to the producer of good X can correct the inefficiency involved.
C)engaging in international trade will solve the inefficiency.
D)None of these is true.

Question

Quizplus · Accepted Answer

Negative externalality in producing a good means that the production of the good has external costs not reflected in the market price, leading to overproduction relative to the socially optimal level. The production possibility curve's slope is unrelated to externalities, subsidies to producers can exacerbate the inefficiency by encouraging more production, and international trade does not inherently solve the inefficiency caused by externalities.

If There Is a Negative Externality Involved in Producing Good