In a Market with External Costs, Suppose the Efficient Level

question 64

Multiple Choice

In a market with external costs, suppose the efficient level ofoutput is 1,000 units. Which of the following statements isTRUE?

• A)To achieve the efficient level of output, the government should set a subsidy equal to the external cost.
• B)To achieve the efficient level of output the government could set a tax equal to the external cost or issue enough tradeable
• Allowances to restrict the output to the efficient level.(True
• Answer )Correct
• C)With external costs, the government can use only taxes to achieve the efficient level of output.
• D)With external costs, the government can use only tradeable allowances to achieve the efficient level of output.

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Definitions:

Plant Expansion

The process of enlarging a company's physical facilities or increasing its production capacity.

Dividend Declarations

Official announcements by a company's board of directors to pay dividends to shareholders, specifying the dividend amount, record date, and payment date.

Retained Earnings

Profits that a company keeps or retains after paying out dividends to shareholders, used to reinvest in the business or pay down debt.

Operating Expenses

Expenses that a company incurs during its normal business operations.