Suppose the Government Limits the Amount of Pollution from Cars

question 70

Multiple Choice

Suppose the government limits the amount of pollution from cars by capping the amount of pollution they can emit to 30 pounds of carbon dioxide per car per year. If Alex was willing to pay $50 to emit an extra pound of carbon dioxide and Tyler was willing to sell a pound of his allowance for $30, would it be efficient for them to make this trade?

• A) No, it would raise the cost of pollution abatement.
• B) Yes, it would lower the cost of pollution abatement.
• C) It is impossible to say whether this would or would not be an efficient trade.
• D) There is no incentive for Alex and Tyler to trade.

Understand the criteria for expensing vs. capitalizing R&D costs and other intangible assets under GAAP.

Calculate the costs associated with acquiring or defending intangible assets.

Differentiate between GAAP and IFRS treatments of goodwill, including impairment and amortization.

Analyze the accounting treatment for purchased intangible assets, including patents and goodwill.

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Definitions:

Top-Down Analysis

Investment analysis approach that starts with global economy conditions before drilling down to industry and company-specific factors.

Fixed Costs

Business expenses that remain the same regardless of the level of production or sales, such as rent, salaries, or loan payments.

Variable Costs

Costs that vary directly with the level of output or production activity.

Corporate Tax Rate

The percentage of a corporation's profits that must be paid to the government as tax.