Which of the Following Is True of a Positive Externality

question 29

Multiple Choice

Which of the following is true of a positive externality?

• A) Some costs are borne by a third party.
• B) The government can use taxes to move the market to the social optimum.
• C) There are no internal benefits.
• D) Some benefits accrue to a third party.
• E) Its existence always requires corrective measures by the government.

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Definitions:

Deferred Tax Assets

These are financial items on a company’s balance sheet representing taxes paid or carried forward but not yet recognized in the income statement.

Deferred Tax Liabilities

Future tax obligations that arise due to temporary differences between a company's taxable income and its accounting earnings.

Book Income Tax Expense

The accounting expense associated with income taxes payable, calculated based on the book income.

Valuation Allowance

A reserve created to account for future tax benefits which may not be realized due to insufficient future taxable income.