Figure: Correcting for Market Failure (Figure: Correcting for Market

question 139

Multiple Choice

Figure: Correcting for Market Failure (Figure: Correcting for Market Failure) Assume that there is an external cost involved in the
Market illustrated in the figure Correcting for Market Failure.If the government intervenes to correct for the external cost, the new ________ will now reflect _.

• A)supply curve S1; private and external costs
• B)supply curve S2; private but not external costs
• C)supply curve S2; private and external costs
• D)demand curve (not shown); external but not private costs

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Definitions:

FIFO Method

The FIFO (First-In, First-Out) method is an inventory valuation strategy where the costs of the oldest inventory items are assigned to the cost of goods sold first.

Inventory Item

An item stored within a company's inventory that is ready or will be ready for sale, including raw materials, work-in-progress, and finished goods.

Gross Profit Method

A technique used in accounting to estimate the amount of ending inventory and cost of goods sold by applying a gross profit margin to sales.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.