An Externality Occurs When

question 27

Multiple Choice

An externality occurs when:

• A) the consumer is unhappy with the product purchased
• B) the producer is unhappy with the sale price
• C) a third party is affected by a market transaction
• D) a third party is affected by a nonmarket transaction

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Definitions:

Useful Life

The estimated duration of time a fixed asset is expected to be economically usable by an entity.

Straight-Line Method

This is a depreciation method where an equal amount of the asset's cost is allocated as an expense each year over its useful life.

Salvage Value

The expected residual cost of an asset by the end of its functional life.

Commercial Substance

A criterion indicating that a transaction significantly changes the economic position or cash flows of a company.