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:

Financial Position

Financial position refers to the status of a company's assets, liabilities, and equity at a specific point in time, providing insight into its financial health and stability.

Retained Earnings

Represents the portion of net income that is held back by a company to reinvest in its business or pay down debt, rather than being distributed to shareholders as dividends.

Contributed Capital

Contributed capital represents the total value of money and other assets that shareholders have directly invested in the company through the purchase of stock.

Legal Restrictions

Laws or regulations that limit or dictate the actions that individuals or organizations can take within a legal framework.