A Negative Production Externality Results In

question 3

Multiple Choice

A negative production externality results in:

• A)A DWL in the market equilibrium because there is too much output relative to the efficient level of production.
• B)A DWL in the market equilibrium because output is too low in the market equilibrium relative to the socially efficient level of output.
• C)No DWL loss in the market equilibrium as all costs and benefits are captured in the actions of market participants.
• D)All of the above.
• E)None of the above.

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Definitions:

Indirect Method

A method for calculating cash flows in which net income is adjusted for changes in balance sheet accounts to reflect cash transactions.

Cash Equivalent

Short-term, highly liquid investments that are easily convertible to known amounts of cash and very close to their maturity.

Accruals

Accounting method that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs.

Indirect Method

A method used to prepare the cash flow statement where net income is adjusted for changes in balance sheet accounts to calculate the cash from operating activities.