Suppose the Production of a Good Involves Significant External Benefits

question 7

Multiple Choice

Suppose the production of a good involves significant external benefits. To force the externality to be internalized, the government can:

• A)impose a tax on the production of the good in order to increase its production.
• B)impose a tax on the production of the good in order to decrease its production.
• C)offer a subsidy on the production of the good in order to increase its production.
• D)offer a subsidy on the production of the good in order to decrease its production.
• E)regulate the supply of the good by preventing the producers from producing too much of the good.

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Definitions:

Net Income

The total earnings of a company after subtracting all expenses, including taxes and operating expenses, from its total revenues.

Operating Costs

Expenses associated with the day-to-day operations of a business, including rent, utilities, payroll, and materials.

Free Cash Flow

Free cash flow is a financial performance measure that calculates how much cash a company generates after accounting for capital expenditures necessary to maintain or expand its asset base.

Net Operating Profit After Taxes (NOPAT)

A measure of a company's operating efficiency, calculated as its operating income minus taxes, assuming no financing is used.