Which of These Statements Is TRUE in the Case of Externalities

question 123

Multiple Choice

Which of these statements is TRUE in the case of externalities?
I. In the case of externalities, prices do not reflect the true cost or benefit of the product.
II. In the case of externalities, prices sometimes send the wrong signals about a market.
III. Externalities discourage new producers from entering the industry since the price always remains about the efficient price.

• A) I and II only
• B) I and III only
• C) II and III only
• D) I, II, and III

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Definitions:

Liabilities

Financial obligations or debts owed by a business to others, such as loans, accounts payable, and mortgages, which need to be settled over time.

Long-Term Decisions

Decisions made by management that are expected to have implications for the company over several years, often relating to strategic planning, investments, and organizational structure.

Fixed Costs

Rent, salaries, and insurance are examples of expenses unaffected by changes in production or sales levels.

Variable Costs

Expenditures that fluctuate in accordance with the amount of products made or sold.