When the Production of a Good Creates an External Cost

question 225

Multiple Choice

When the production of a good creates an external cost, one method of achieving the efficient allocation is to impose a tax such that

• A) MC + tax = MSC.
• B) MC - tax = MSB.
• C) MB + tax = MSC.
• D) MB - tax = MSB.

---

Definitions:

Quality

The degree to which a set of inherent characteristics fulfills requirements or expectations, often associated with excellence or superiority.

Inventory Cycle

The series of stages that inventory goes through, from initial purchase or production to sale, including restocking and management.

Stocking Level

Refers to the quantity of inventory kept on hand by a business to meet demand without incurring stockouts or excessive surplus.

Standardized Parts

are components manufactured to a set specification that can be used interchangeably in various products, reducing costs and simplifying production.