Externalities Are Only Inefficient When They Impose a Cost

question 178

True/False

Externalities are only inefficient when they impose a cost. They are not inefficient when they bestow a benefit.

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Definitions:

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertook by investing their capital.

WACC

Weighted Average Cost of Capital, a calculation that reflects the cost of a company to finance its assets through a mix of equity and debt.

Level of Risk

The level of risk and possible monetary loss associated with making an investment choice.

Weighted Average Cost

A measure that calculates the average cost of goods available for sale, considering the weight of each unit's cost.