In the Case of a Negative Externality, the Socially Optimal

question 90

Multiple Choice

In the case of a negative externality, the socially optimal output naturally exists if

• A)the external costs associated with the negative externality are extremely small.
• B)the external costs divided by price is equal to price divided by marginal private cost.
• C)there are no free riders.
• D)the public good aspects of the negative externality outweigh the costs incurred by the negative externality.
• E)none of the above

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Definitions:

Depreciable Cost

The total cost of a tangible asset minus its estimated residual value, over which the cost is allocated during its useful life.

Double-Declining-Balance Method

An accelerated depreciation method that doubles the straight-line depreciation rate, applying it to the remaining book value of an asset each year.

Units-Of-Output Depreciation

A depreciation method that allocates an asset's cost based on its usage or production levels, rather than simply the passage of time.

Depreciable Cost

The total cost of a tangible asset that is subject to depreciation, excluding salvage value, to allocate over the asset's useful life.