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    Question

    When a firm’s decision to produce decreases the

    wellbeing of others, but the firm does not compensate those others. It is a case of______.
    A Positive Production Externality Correct Answer Incorrect Answer
    B Negative Production Externality Correct Answer Incorrect Answer
    C Positive Consumption Externality Correct Answer Incorrect Answer
    D Negative Consumption Externality Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    Negative Production Externality (MSC > MPC) is whe re a firm’s decision to produce decreases the wellbeing of others, but the firm does not compensate those others. Examples include air and noise pollution from the production process, the dumping of waste and effects of deforestation .

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