In the Presence of Positive Externalities, a Free Market Will

question 191

Multiple Choice

In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

• A) high; low
• B) low; low
• C) high; high
• D) low; high
• E) marginal; inequitable

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Definitions:

Price Variance

A variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input.

Direct Material

Direct Material includes raw materials that are directly incorporated into a finished product and can be easily traced to the product itself.

Standard Cost

A predicated cost for a product or service, under normal conditions, used for budgeting and performance evaluations.

Materials Price Variance

The variance between the real expense of direct materials utilized in manufacturing and the projected standard expense for those materials.