Figure 5.1 Figure 5-1 Shows a Market with an Externality. the Current

question 56

Multiple Choice

Figure 5.1

Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5.1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent?

• A)the market supply curve reflecting external cost
• B)the market supply curve reflecting implicit cost
• C)the market supply curve reflecting social cost
• D)the market supply curve reflecting private cost

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Definitions:

Owner's Capital

The amount of equity a business owner has in the firm, representing the owner's personal investment plus any profits retained in the business.

Internal Control

Practices and procedures deployed by a company to verify the honesty of its financial and accounting figures, enhance responsibility, and eliminate swindling.

Inventoriable Costs

Direct costs associated with the acquisition or production of goods that are held for sale in the ordinary course of business.

Closing Entries

Closing entries are journaled at the end of an accounting period to transfer the balances in temporary accounts to permanent accounts, thereby resetting the temporary accounts for the next period.