Ed Has 100 Tons of Manure

question 10

Multiple Choice

Ed has 100 tons of manure.The lowest price at which he is willing to sell it is $10 per ton.Fred wants to buy 100 tons of manure.The most he is willing to pay is $8 per ton.The federal government offers to subsidize manure sales at a rate of $1 per ton.If Ed and Fred are the only people who deal in manure, then the deadweight loss caused by the subsidy is

• A)$100.
• B)$50.
• C)$0.
• D)$200.
• E)none of the above.

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Definitions:

Goodwill

The intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets.

Share Issue Costs

The expenses associated with issuing new shares of stock, including legal, accounting, and underwriting fees.

Fair Value

The valuation expected from selling an asset or the outlay needed to reassign a liability in a coordinated market transaction as determined on the measurement date.

Future Cash Flows

Estimates of the amount of money that is expected to be generated or expended by a business in future periods from its operational activities.