Assume the Production of a Good Causes a Negative Externality

question 39

Multiple Choice

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

• A)less than the social cost of producing it.
• B)less than the private cost of producing it.
• C)more than the social cost of producing it.
• D)more than the private cost of producing it.

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Definitions:

Bondholders

Individuals or entities that hold the debt securities issued by corporations or governments, known as bonds.

Gain or Loss

The financial result from a transaction when the selling price of an asset differs from its book value.

Bonds

Long-term debt securities issued by corporations and governments to raise funds, paying interest to holders.

Effective-Interest Method

An accounting practice used to amortize the discount or premium on bonds payable over the bond’s life, reflecting a constant rate of interest.