When the Production of a Good Creates an External Cost

question 225

Multiple Choice

When the production of a good creates an external cost, one method of achieving the efficient allocation is to impose a tax such that

• A) MC + tax = MSC.
• B) MC - tax = MSB.
• C) MB + tax = MSC.
• D) MB - tax = MSB.

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Definitions:

Percentage Total Return

A measure of the performance of an investment, calculated by dividing the investment's profit by its initial cost.

Dividends

Payments made by a corporation to its shareholder members, usually derived from profits.

Capital Gains Yield

The appreciation in the price of an investment, calculated as the increase in the investment's value divided by its initial purchase price.

Total Return

A measure of the performance of an investment, including both capital gains and dividends or interest, over a specific period.