When a Producer Operates in a Market Characterised by Negative

question 45

Multiple Choice

When a producer operates in a market characterised by negative production externalities, a tax that forces them to internalise the externality will:

• A)give sellers the incentive to take account of the external effects of their actions
• B)have an offsetting effect that reduces the producer's private production costs
• C)increase the amount of the commodity exchanged in market equilibrium
• D)restrict the producer's ability to take the costs of the externality into account when deciding how much to supply

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Definitions:

Credit Risk Analysis

The process of evaluating the risk of potential default by a borrower or counterparty.

Forecast Horizon

The maximum period for which a prediction or forecast is considered valid or reliable, beyond which the uncertainty becomes too large.

Depreciation Expense

The portion of the total cost of a tangible asset that is charged as an expense in a particular accounting period due to its usage and wear and tear.

Financial Structure

The mix of a company's liabilities and shareholders' equity used to finance its assets, including short-term and long-term debt, as well as equity capital.