If the Production of a Particular Good Involves Significant External

question 98

Multiple Choice

If the production of a particular good involves significant external costs, what might the government do to force the externality to be internalized?

• A) Offer a subsidy for production of the good in order to increase production.
• B) Offer a subsidy for production of the good in order to decrease production.
• C) Impose a tax on production of the good in order to decrease production.
• D) Impose a tax on production of the good in order to increase production.

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Definitions:

Inventory Models

Mathematical models and methodologies used to determine optimal inventory levels that balance holding costs with demand, to minimize overall costs.

Stockout

A situation where the inventory of a particular product is completely depleted.

Total Inventory Based Costs

Total Inventory Based Costs refer to the cumulative expenses associated with holding and managing inventory, including carrying costs, ordering costs, and shortage costs.

Basic EOQ Model

An inventory management formula known as the Economic Order Quantity model that determines the optimal order quantity to minimize the total costs of holding, ordering, and shortage.