Markets Are Often Inefficient When External Costs Are Present Because

question 247

Multiple Choice

Markets are often inefficient when external costs are present because:

• A) externalities cannot be corrected without government regulation.
• B) social costs exceed private costs at the private market solution.
• C) private costs exceed social costs at the private market solution.
• D) production externalities lead to consumption externalities.

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Definitions:

Overhead Pools

Aggregations of indirect costs or overheads that are then allocated to products or services based on predetermined criteria.

Cost of Activities

The expenses associated with specific actions or operations within a company.

Reciprocal Method

A complex cost allocation method that recognizes interactions among service departments and allocates costs accordingly.

Support Department Costs

The costs associated with departments that do not directly produce goods or services but provide necessary support to production departments, such as maintenance, accounting, and human resources.