When an External Cost Exists That Is NOT Taken into Account

question 223

Multiple Choice

When an external cost exists that is NOT taken into account in the production of a product,

• A) the level of output is too low, and the supply curve should shift to the right to account for the externality.
• B) the level of output is optimal, and there should be no change in the supply curve.
• C) the price of the product is too high, and production should be expanded to lower the price.
• D) the level of output is too high, and the supply curve should shift to the left to account for the externality.

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Definitions:

Par Stock

The nominal or face value assigned to shares of stock by the corporation's charter, which may differ from their market value.

Market Value Method

An accounting method that values assets or securities at their current market prices rather than at historical costs or book values.

Book Value Method

An accounting technique where assets are valued in the balance sheet at their original cost minus any accumulated depreciation.

Stockholder's Equity

The residual interest in the assets of the corporation after deducting liabilities, representing the ownership interest of shareholders.