If a Negative Externality Exists in the Market for Dirt

question 4

Multiple Choice

If a negative externality exists in the market for dirt bikes and that market is perfectly competitive:

• A) less than the efficient output of dirt bikes will be produced.
• B) the price of dirt bikes exceeds the marginal social cost.
• C) the price of dirt bikes equals the marginal social cost.
• D) the price of dirt bikes is less than the marginal social cost.

---

Definitions:

Bankruptcy

A legal process in which individuals or businesses unable to meet their financial obligations seek relief from some or all of their debts.

Par-Value Bond

A bond that is issued and redeemed at its face value, which is the amount paid to the bondholder at maturity.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, usually expressed in years.