The Distribution of Rights Among Parties Affected by an Externality

question 115

Multiple Choice

The distribution of rights among parties affected by an externality:

• A)hinders the ability of private parties to properly price the externality
• B)enhances the market incentive to reach an efficient solution
• C)determines who bears the cost of the solution but has no effect on the efficiency of this outcome
• D)affects the efficiency of the outcome, but does not determine who bears the cost

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Definitions:

Variable Overhead Efficiency Variance

The difference between the actual variable overhead and what the variable overhead costs should have been for the actual good units produced.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected amount, which can indicate efficiency or waste.

Materials Price Variance

The difference between the actual cost of materials purchased and the expected cost, based on standard prices.

Labor Rate Variance

The difference between the actual cost of labor and the expected (or standard) cost, based on the hours worked.