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

question 105

Multiple Choice

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit. Economists argue that in an unregulated private market _______ is produced and the supply curve (S₁) reflects ________ cost.

• A) too little; private
• B) too much; private
• C) too much; external
• D) too little; external and private

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Definitions:

Allowance Account

An account used to reduce the carrying amount of accounts receivable or loans to their net realizable value, reflecting expected losses due to uncollectibility.

Aging

A method used to categorize accounts receivable based on the length of time an invoice has been outstanding.

Accounts Receivable

Unpaid customer debts to a company for goods or services that have been supplied.

Bad Debts Expense

An expense reported on the income statement reflecting the cost of estimated uncollectible accounts receivable.