Suppose That Smoking Creates a Negative Externality

question 409

Multiple Choice

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

• A)the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
• B)the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
• C)the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
• D)There is not enough information to answer the question.

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Definitions:

Mineral Deposit

A naturally occurring accumulation of minerals that can be extracted for economic benefit.

Journalize

The act of recording transactions in an accounting journal, noting the debit and credit aspects of each transaction.

Straight-Line Method

A depreciation method that allocates an asset's cost evenly across its useful life.

Annual Depreciation

Definition: The portion of the cost of a fixed asset that is expensed on an annual basis through the process of depreciation.