Market Failure in the Form of Externalities Arises When

question 38

Multiple Choice

Market failure in the form of externalities arises when

• A) production costs are included in the prices of goods.
• B) there are costs and/or benefits that result from a transaction and affect someone other than the parties involved in the transaction.
• C) the benefits exceed the costs of consuming goods.
• D) the market fails to achieve equilibrium.

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Definitions:

Variable Overhead Efficiency

The variance indicating the efficiency with which a variable overhead cost is incurred in relation to an activity level, such as machine or labor hours.

Rate Variance

The difference between the actual rate paid for an item or service and the expected (standard) rate, used in budgeting and cost control.

Budget Variance

A measurement of the difference between the budgeted or planned amount of expense or revenue, and the actual amount incurred/sold.

Predetermined Overhead Rate

An estimated charge used to distribute overhead costs to products or projects, based on an expected standard, allowing for cost allocation before actual expenses are known.