A Buyer Values a Good at $60 While the Good

question 9

Multiple Choice

A buyer values a good at $60 while the good costs a seller $50 to make and sell.The good is sold for a price of $55.Making the good results in pollution that harms people not directly involved in the transaction.When will this transaction result in a market failure?

• A) Only when the cost of the pollution exceeds $10.
• B) When the pollution has any cost.
• C) Only when the cost of pollution exceeds $5.
• D) Only when the cost of pollution exceeds $60.

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Definitions:

Residual Dividend Policy

A strategy where dividends are paid to shareholders from the leftover or residual earnings after all operational and expansion costs are covered.

Target Capital Structure

The ideal mix of debt, preferred stock, and common equity that a company aims to hold to minimize its cost of capital.

Forecasted Net Income

An estimated calculation of a company's earnings after all expenses and taxes have been subtracted from revenue for a given future period.

Total Dividends

The sum of all dividend payments made to shareholders for a particular period, typically a fiscal year.