If a Negative Externality Exists in the Production of Paper

question 189

Multiple Choice

If a negative externality exists in the production of paper and paper is sold in a perfectly competitive market,then the equilibrium output

• A) is greater than the socially optimal output.
• B) is smaller than the socially optimal output.
• C) is the same as the socially optimal output.
• D) may be either more or less than the socially optimal output.
• E) may be either equal to,or less than,the socially optimal output.

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Definitions:

Premium Bond

Bond prices and interest rates are inversely related; that is, they tend to move in the opposite direction from each other. A fixed-rate bond will sell at par when its coupon interest rate is equal to the going rate of interest, rd. When the going rate of interest is above the coupon rate, a fixed rate bond will sell at a “discount” below its par value. If current interest rates are below the coupon rate, a fixed rate bond will sell at a “premium” above its par value.

Floating Rate Bond

A floating rate bond is a bond with a variable interest rate, which adjusts periodically according to a specified benchmark.

Variable Rate

An interest rate that can change over the period of a loan or mortgage, based on an underlying benchmark interest rate or index.

Coupon Payment

The interest payment made to bondholders, typically semiannually, as a return on investment.