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:

Raw Materials

The basic materials and substances used in the initial stages of production.

Work in Process

Inventory that includes products that are in the production process but are not yet complete.

Labor Rate Variance

The difference between the actual cost of labor and the standard or expected cost, which can occur due to wage rate changes or differences in worker efficiency.

Labor Efficiency Variance

The difference between the actual labor hours taken to produce something and the standard labor hours expected, multiplied by the labor rate.