The option that is true of production of a good causes a negative externality in production is a). All of these answers are correct.
When a good causes a negative externality in production, the market-determined quantity of the good will be higher than the socially optimal quantity. This is because the producer does not take into account the negative externality when making their production decisions.
As a result, they produce more output than is necessary, leading to a higher level of pollution or other harmful effects. So, the overallocation of resources can be corrected by the government by implementing a Pigouvian tax. This is a tax on the production of the good that is equal to the negative externality.
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which of the following is true of production of a good causes a negative externality in production?
a). All of these answers are correct.
b). At the market-determined quantity output of the good is higher than the socially optimal quantity.
c). Market forces may lead to an overallocation of resources to produce the good.
d). The government can tax production of the good to increase efficiency.