Which of the Following Is True of Externality

question 43

Multiple Choice

Which of the following is true of externality?

• A)An externality enhances the efficiency of the market system.
• B)An externality is not an economic problem because it is external to the market.
• C)An externality is a cost borne by the people who are directly or indirectly involved in the production of a good or service.
• D)An externality accrues to someone who had nothing to do with the production or consumption of a good or service.
• E)An externality refers to some unexpected change in the equilibrium price or quantity of a product.

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Definitions:

American Options

Options that can be exercised at any time before expiration, as opposed to European options which can only be exercised on the expiration date.

European Options

Financial derivatives that give the holder the right to buy or sell an underlying asset at a specified price, but only on the option's expiration date.

Payoff

The return received from an investment or the outcome of a decision or transaction.

Underlying Asset

The financial instrument (such as stocks, bonds, commodities) upon which derivatives or other financial instruments (e.g., options) are based.