When Negative Externalities Are Present, Market Failure Often Occurs Because

question 147

Multiple Choice

When negative externalities are present, market failure often occurs because:

• A) the cost borne by a third party not involved in the trade is not reflected in the market price.
• B) the cost borne by a third party not involved in the trade is reflected in the market price.
• C) the existence of imports from foreign countries takes jobs (and income) away from U.S. citizens.
• D) consumers will consume the good at a level at which their individual marginal benefits exceed the marginal costs borne by the firm producing the good.

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Definitions:

Equity

Refers to the ownership interest held by shareholders in a corporation, represented by the company's common and preferred stock.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock or another security at a specified price before the contract expires.