When Production of a Good Generates External Costs, the

question 131

Multiple Choice

When production of a good generates external costs, the

• A) demand curve for the good will overstate the true social benefits from consumption of the good.
• B) demand curve for the good will understate the true social benefits from consumption of the good.
• C) supply curve for the good will overstate the true social cost of producing the good.
• D) supply curve for the good will understate the true social cost of producing the good.

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Definitions:

Accounts Payable

Liabilities of a business that are owed to creditors for goods and services purchased on credit.

Times Interest Earned

A metric used to measure a company's ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Tax Rate

The percentage at which an individual or corporation is taxed, determining the portion of income or profits that must be paid to the government.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including the material and labor costs.