Use the Following to Answer Question

question 5

Multiple Choice

Use the following to answer question:
Figure: Correcting for Market Failure
-(Figure: Correcting for Market Failure) Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.If the government intervenes to correct for the external cost,the new _____ will now reflect _____ costs.

• A)supply curve S₁;both private and external
• B)supply curve S₂;private but not external
• C)supply curve S₂;both private and external
• D)demand curve (not shown);external but not private

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Definitions:

GAAP

Generally Accepted Accounting Principles, a common set of accounting rules and standards used in financial reporting.

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, essential for assessing financial health.

Audited

The process of officially inspecting an individual's or organization's accounts by an independent body to ensure accuracy and compliance with laws and regulations.

Non-cash Items

Expenses or incomes recorded in the income statement which do not involve actual cash flow, such as depreciation, stock-based compensation, or provisions.