To Maximize Social Welfare in the Presence of a Negative

question 120

Multiple Choice

To maximize social welfare in the presence of a negative externality, marginal __________ must equal marginal __________.​

• A)social cost; private cost
• B)private cost; external cost​
• C)social cost; social benefit​
• D)private cost; social benefit​
• E)social cost; external cost​

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Definitions:

Fair-value Hedge

A hedge of the exposure to changes in the fair value of an asset or liability or an unidentified firm commitment that could affect profit or loss.

Drilling Machine

A tool used for making holes in various materials, part of machinery equipment.

Forward Contract

A financial agreement between two parties to buy or sell an asset at a predetermined future date and price.

Cash-flow Hedge

A financial strategy used to manage risk associated with variability in cash flows due to changes in exchange rates, interest rates, or commodity prices, by using derivatives.