Which of the Following Statements Is TRUE

question 193

Multiple Choice

Which of the following statements is TRUE?
I. If an activity creates an external cost of $15, the government should subsidize the activity by $15.
II. Social surplus is maximized when the private marginal benefit equals the social cost.
III. External costs result in markets producing too much output.
IV. Someone pays external costs other than the producer or consumer.

• A) I and III only
• B) II, III, and IV only
• C) III only
• D) II and IV only

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Definitions:

Marginal Tax Rate

The proportion of your earnings that is taxed according to the tax bracket(s) for which you are eligible.

Straight-Line Depreciation

A method of calculating the depreciation of an asset that allocates an equal amount of depreciation each year over the asset's useful life.

Cash Expenses

Outlays of cash during a given period for direct charges such as wages, rent, and utilities.