An Externality Is Said to Exist When

question 33

Multiple Choice

An externality is said to exist when:

• A)individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.
• B)individuals impose costs or benefits on others,and the market provides incentives to take these costs and benefits into account.
• C)individual actions are affected by external forces like the loss of U.S.jobs because of competition from abroad.
• D)individual actions are affected by government policies (such as taxes)that are externally imposed on the market.

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Definitions:

Fixed Cost

Expenses that do not change in the short term regardless of the level of production or output.

Average Fixed Cost

The fixed costs of production (costs that don't change with the level of output) divided by the quantity of output produced.

Marginal Product

The additional output resulting from a one-unit increase in the input of a particular productive resource, holding all other inputs constant.

Average-Total-Cost

The cost per unit of output, calculated by dividing the total cost (fixed and variable costs) by the total quantity produced.