One Reason That Private Solutions to Externalities Do Not Always

question 201

Multiple Choice

One reason that private solutions to externalities do not always work is that

• A)government intervention negates the benefits of positive externalities.
• B)some people benefit from externalities.
• C)interested parties incur costs in the bargaining process.
• D)charities are not well organized.

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Definitions:

After-tax Cash Flows

After-tax cash flows are the net cash flows a company generates after accounting for taxes.

Salvage Value

Salvage value is the estimated resale value of an asset at the end of its useful life.

Equivalent Annual Annuity

The annual cash flow of an investment that yields the same present value as the investment’s costs, used in capital budgeting to compare the profitability of investments.

Payback

The period of time required for the return on an investment to "pay back" the initial capital outlay.