UESTION 4 If the government overcorrected in a situation of external costs More
ID: 1140328 • Letter: U
Question
UESTION 4
If the government overcorrected in a situation of external costs
More than the efficient amount of the good would end up being produced.
Less than the efficient amount of the good would end up being produced.
It would result in a welfare cost in that market that was bigger than the initial welfare cost.
Both a and c are would result
a.More than the efficient amount of the good would end up being produced.
b.Less than the efficient amount of the good would end up being produced.
c.It would result in a welfare cost in that market that was bigger than the initial welfare cost.
d.Both a and c are would result
Explanation / Answer
Since with the overcorrection by the government, the efficiency of the production decreases, so the firm ends up by producing less than the efficient quantity of production. This is because government is imposing more taxes which more than the socially efficient. Hence If the government overcorrected in a situation of external costs Less than the efficient amount of the good would end up being produced.
Hence option b is the correct answer.
Option b;Less than the efficient amount of the good would end up being produced.
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