When Pollution (A Negative Externality) Is Created by Firms, Which

question 113

Multiple Choice

When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum?

• A) require firms to install pollution-abatement equipment
• B) require firms to change production techniques to reduce emissions
• C) levy a tax on the production of the good
• D) require firms to pay for the environmental damage they create
• E) offer a subsidy to firms to reduce their production cost

---

Definitions:

Liability

A financial obligation or debt owed by a business to another entity, which requires settlement through the transfer of assets or services.

Revenue Recognition

The process by which companies document and account for their income, specifically defining when and under what circumstances revenue is considered earned.

Manage Earnings

This involves legal and possibly unethical financial reporting strategies to make a company's financial condition appear more favorable than it actually is.

Generally Accepted Accounting Principles

A framework of accounting standards, principles, and procedures that companies must follow when compiling their financial statements in the U.S.