A Liability Rule

question 31

Multiple Choice

A liability rule

• A) Involves the use of taxes or fees to remedy negative externalities
• B) Involves the use of subsidies to remedy negative externalities
• C) Is a legal principle requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
• D) Requires that victims of an externality pay a tax to the producers of the externality

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Definitions:

Operating Expenses

Costs associated with the day-to-day functions of a business, not including the cost of goods sold but typically covering administrative, sales, and general expenses.

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, rules, and procedures defined by the professional accounting industry in a specific country.

Capitalize

The process of recording an expenditure as an asset, rather than an expense, thereby spreading the cost over its useful life.

Bargain Purchase Option

A clause in a lease agreement that allows the lessee the option to purchase the leased asset at a price below its expected fair market value.