Assume That the Production of a Good Imposes External Costs

question 112

Multiple Choice

Assume that the production of a good imposes external costs upon third parties. If the price and quantity of this good is set by supply and demand the price will be too:

• A) high and quantity too low for efficient resource allocation.
• B) low and quantity too low for efficient resource allocation.
• C) low and quantity too high for efficient resource allocation.
• D) high and quantity too high for efficient resource allocation.

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Definitions:

Budget Variance

The difference between budgeted and actual figures for revenues or costs, indicating the degree of control over business operations.

Budget Variance

The difference between the budgeted amounts and the actual amounts spent or received.

Fixed Overhead Volume Variance

The difference between the budgeted and actual quantity of units produced, multiplied by the fixed overhead rate per unit.

Unfavorable

A term used to describe variances or differences that negatively impact profitability or efficiency, often indicating higher costs or lower revenue than expected.