If Production of a Good Creates an External Cost, the Amount

question 67

Multiple Choice

If production of a good creates an external cost, the amount of output where the marginal social benefit equals the marginal private cost is

• A) inequitable.
• B) efficient.
• C) inefficient.
• D) unattainable.

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Definitions:

Tax Shield

A reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as interest on loans.

Noncash Expenses

Expenses recorded on an income statement that do not involve actual cash flow, such as depreciation or amortization.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision, representing the benefits one could have received by taking a different decision.

Opportunity Cost

The economic consequence of not opting for the immediate secondary option when a decision is made.