-Refer to the Diagram Above

question 7

Multiple Choice

-Refer to the diagram above.Generally speaking,most remedies for external costs due to pollution in Canada have not been through taxation but regulations requiring firms to use a specific type of pollution-reduction technology.For the regulation to lead to the socially optimal level of output,one must assume that

• A) firms will simply choose to go out of business and eliminate the externality.
• B) requiring the technology will increase costs such that the private supply,S,shifts to S1.
• C) it is easier to regulate than to tax.
• D) requiring the technology will shift the social supply curve,S1,to S.
• E) the best way to reduce pollution is to force firms to use a particular technology.

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Definitions:

Market-Price Transfer

The practice of setting the price for goods or services sold between divisions within the same company based on the current market price.

Variable Cost

Costs that vary directly with the level of production or sales volume.

External Suppliers

Third-party entities that provide goods or services to a company, but are not part of the company itself.

Annual Capacity

The total output a company can produce in a year using its resources efficiently.