-(Exhibit: Correcting for Market Failure: External Cost) Assume That There

question 39

Multiple Choice

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit. If the government sector forces the private sector firms to face the external cost, the supply curve _______ from _______ to ________ .

• A) shifts right; S₂; S₁
• B) shifts left; S₁; S₂
• C) remains unchanged; S₁; S₁
• D) remains unchanged; S₂; S₂

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision; represents the benefits that could have been received by choosing the alternative.

Revenue Forgone

Potential income not earned or lost by choosing an alternative action, representing the opportunity cost of decisions.

Total Cost Method

A accounting approach that involves direct costs, indirect costs, and fixed and variable expenses to determine the overall cost of a product.

Manufacturing Costs

Expenses directly associated with the production of goods, including materials, labor, and overhead.