Suppose That a Negative Externality Creates $1 Billion Worth of Costs

question 75

Multiple Choice

Suppose that a negative externality creates $1 billion worth of costs to third parties. The government attacks the problem with regulations that cut the cost of the externality to $500 million but cost business and consumers $1.5 billion. This situation illustrates the idea that:

• A) regulations are an effective way to curb externalities.
• B) externalities can never be corrected.
• C) correcting market failure can result in government failure.
• D) getting rid of externalities requires a great deal of necessary sacrifice for all of us.

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Definitions:

Adjusted Trial Balance

A statement showing all balances of ledger accounts after adjustments, used to prepare financial statements.

Adjustments Column

A column in journals or ledgers where adjustments are made to correct or update account balances before the preparation of financial statements.

Unadjusted

Refers to figures or entries that have not been modified to reflect adjustments, corrections, or changes.

Adjusted

Adjusted generally refers to alterations made to financial statements or data to correct for discrepancies or to account for extraordinary events.