When There Is a Positive Externality

question 40

Multiple Choice

When there is a positive externality,

• A)the marginal private benefit received by consumers is greater than the external benefit.
• B)the marginal social benefit received by consumers is greater than the marginal private benefit.
• C)the marginal private benefit received by consumers is greater than the marginal private cost.
• D)the marginal private benefit received by consumers is greater than the marginal social benefit.

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Definitions:

Black-Scholes Formula

A mathematical model used to determine the theoretical price of European put and call options, excluding dividends.

Continuously Compounded

A mathematical approach to compounding where the interest earned is constantly reinvested, leading to exponential growth.

Risk-free Asset

An investment that is expected to return its full initial value without any loss, typically government bonds.

Exercise Price

The specified price allowing the bearer of a call option to acquire, or a put option to dispose of, the underlying asset or good.