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

question 246

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.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case, the diagram shows

• A)the effect of a positive externality in the production of a good.
• B)the effect of a negative externality in the production of a good.
• C)the effect of an external cost imposed on a producer.
• D)the effect of an external benefit such as a subsidy granted to consumers of a good.

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Definitions:

LIFO

An inventory valuation method standing for Last-In, First-Out, where the most recently acquired items are assumed to be sold or used first.

FIFO

FIFO (First In, First Out) is an inventory valuation method where the oldest inventory items are recorded as sold first.

Fair Value

The estimated market value of an asset or liability, based on current market prices.

Cost of Goods Sold

An accounting term that represents the direct costs attributable to the production of the goods sold by a company.