When Is an Externality Present

question 22

Multiple Choice

When is an externality present?

• A) when the private marginal cost of an activity exceeds the private marginal benefit
• B) when the social marginal cost of an activity exceeds the private marginal cost
• C) when the social marginal cost of an activity exceeds the social marginal benefit
• D) when the social marginal benefit of an activity is less than the private marginal benefit

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Definitions:

Budget Deficit

A financial situation where government expenditures exceed its revenues.

Functional Finance

An economic theory asserting that government should finance its spending to meet explicit economic objectives, such as full employment, rather than aiming to balance budgets.

Budget Deficit

The financial situation where a government's expenditures exceed its revenues, leading to a shortfall that must be financed through borrowing.

Balanced Budget

A financial plan or budget where revenues are equal to expenditures, leaving no deficit or surplus.