Suppose That the EPA Has Proposed Strict Controls on the Amount

question 126

Multiple Choice

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above.Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope,one can infer that the EPA determined that:

• A)the external benefit of using diesel fuel is less than 10 cents.
• B)the external cost of using diesel fuel is greater than 10 cents.
• C)the external cost of using diesel fuel is less than 10 cents.
• D)the external cost of using diesel fuel is equal to 10 cents.

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Definitions:

Liberal Accounts Receivable Policy

A policy that involves offering lenient credit terms to customers, such as extended periods before payment is due, which can encourage sales but may increase the risk of bad debts.

Operating Cycle

The period it takes for a business to buy inventory, sell products, and collect cash from sales, reflecting the efficiency of a company’s operations.

Inventory Period

The average number of days that a company holds its inventory before selling it, indicating the efficiency of its inventory management.

Accounts Receivable Period

The average number of days it takes for a business to receive payments from its customers for goods or services sold on credit.