Relating to the Economics in Practice on Page 330: by Not

question 152

Multiple Choice

Relating to the Economics in Practice on page 330: By not factoring in the external costs on society resulting from an environmental disaster caused by a specific firm, the firm will most likely ________ its product, and at equilibrium, the marginal social costs of production will be ________ the price.

• A) overproduce; less than
• B) overproduce; greater than
• C) underproduce; less than
• D) underproduce; greater than

---

Definitions:

Deduction

An amount that is subtracted from gross income or total expenses, used to reduce taxable income or the amount owed.

Effective Interest Rate Method

The method of amortizing discounts and premiums that provides for a constant rate of interest on the carrying amount of the bonds at the beginning of each period; often called simply the “interest method.”

Constant Dollar

A term used in economics to describe a monetary value that has been adjusted for inflation, thereby facilitating comparison of purchasing power over different periods.

Interest Expense

The cost incurred by an entity for borrowed funds, often reported on the income statement as a non-operating expense.