If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:
A)does not include the external cost.
B)includes the external cost.
C)does not include the external benefit.
D)includes the external benefit.

Question

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:
A)​does not include the external cost.
B)​includes the external cost.
C)​does not include the external benefit.
D)​includes the external benefit.

Quizplus · Accepted Answer

If there is a negative externality from the refining of oil, the cost of production as seen by the oil refinery does not include this external cost. This is because the negative impact is felt by third parties who are not involved in the production process, and therefore the cost is not borne by the producers. This is one of the main reasons why there may be a need for government intervention, such as taxes or regulations, to account for these external costs and ensure that producers are internalizing them into their production decisions.

If a Negative Externality Results from the Refining of Oil