Dina Is Driving to Work on an Interstate Highway at 90

question 149

Multiple Choice

Dina is driving to work on an interstate highway at 90 MPH, well in excess of the legal speed of 65 MPH. Sandy is also driving to work at the same time, going 85 MPH. A state trooper pulls Dina over and gives her a speeding ticket. Sandy continues driving, but if Dina had not been speeding, the trooper would have ticketed Sandy instead. In terms of externalities, this story shows that:

• A) Sandy's actions gave Dina a positive externality.
• B) Dina's actions gave Sandy a positive externality.
• C) Sandy's actions gave Dina a negative externality.
• D) Dina's actions gave Sandy a negative externality.
• E) Dina's and Sandy's actions did not create any externalities.

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Definitions:

Fixed Overhead

Fixed overhead refers to indirect costs that remain relatively stable regardless of the level of production or sales, such as salaries of administrative personnel and depreciation of buildings.

Variable Overhead

Costs that change in proportion to the level of activity or volume of production in a company.

Direct Labor

The wages and benefits paid to employees who are directly involved in the production of goods or delivery of services.

Direct Materials

Raw materials that are directly traceable to the production of goods, considered a variable cost.