Why Do Negative Externalities Like Pollution Result in Inefficiency

question 100

Multiple Choice

Why do negative externalities like pollution result in inefficiency?

• A) Because producers artificially restrict their supply.
• B) Because producers ignore the external costs they impose on third-parties.
• C) Because producers manufacture more goods than people can afford to buy.
• D) Because producers will receive an unequal distribution of profits.

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Definitions:

Initial Cash Outflow

The initial amount of money paid out or expended, typically for an investment or purchase, before any returns are considered.

Required Return

The minimum rate of return an investor expects to achieve by investing in a particular asset or project.

Required Rate

The least yearly interest rate that persuades individuals or entities to dedicate capital to a distinct project or investment opportunity.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time. It's used in capital budgeting to assess the profitability of an investment or project.