Exhibit 30-4 ​ Refer to Exhibit 30-4. If a Negative Externality Exists, Then

question 67

Multiple Choice

Exhibit 30-4 ​

Refer to Exhibit 30-4. If a negative externality exists, then the external costs associated with the negative externality equal the distance between points __________, and the socially optimal output is __________.

• A)A and C; Q₂
• B)D and B; Q₁
• C)C and B; Q₂
• D)A and B; Q₂

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Definitions:

Stock Options

Options granted by a company to its employees as a form of incentive compensation allowing them to buy shares at a specific price for a certain period.

Market Price

The present cost for purchasing or selling an asset or service in a market driven by competition.

Tax Treatment

This refers to the applicable rules and regulations that determine how different financial transactions and situations are taxed by governmental authorities.

Discretionary Accruals

Accounting adjustments that management can influence, often used to smooth out earnings or manipulate financial results.