When Negative Externalities Are Involved, the Market Is Said to

question 135

Multiple Choice

When negative externalities are involved, the market is said to

• A)fail, because it underproduces the good connected with the negative externality.
• B)fail, because it overproduces the good connected with the negative externality.
• C)succeed, because it produces the socially optimal quantity of the good connected with the negative externality.
• D)be "in optimum," because the equilibrium fully adjusts for the negative externality.

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Definitions:

Cost of Sales

The direct costs attributable to the production of the goods sold by a company.

Economic Exposure

The risk that a company's cash flow, earnings, or future cash flows will be affected by changes in exchange rates.

Monetary Items

Assets and liabilities that are to be received or paid in a fixed or determinable amount of money.

Functional Currency

The main currency used by a business or economy, reflecting the primary economic environment in which it operates.