If the Production of a Good Generates a Detrimental Externality

question 193

Multiple Choice

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

• A)MU = MSC.
• B)P < MPC.
• C)MPC < MSC.
• D)MPC > MSC.

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Definitions:

Covered Interest Arbitrage

An investment strategy that involves exchanging domestic currency for a foreign currency, investing in foreign interest-bearing assets, and using forward contracts to hedge exchange rate risk.

Forward Contract

A special arrangement made between two parties to transact an asset at a pre-agreed price on a set date in the future.

Exchange Currency

The act of converting one country's currency into another, often subject to an exchange rate.