To Ensure an Efficient Equilibrium Outcome When External Costs Are

question 213

Multiple Choice

To ensure an efficient equilibrium outcome when external costs are present in the market, the government could:
I. implement a tax equal to the level of the external cost.
II. create a system of tradable allowances to reduce output to the efficient quantity.
III. institute command and control policies to reduce output to the efficient quantity.

• A) I and II only
• B) II and III only
• C) II only
• D) I, II, and III

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Definitions:

Preferred Stockholders

Investors who own preferred shares in a company, having priority over common stockholders in receiving dividends and assets upon liquidation.

Dividend

A portion of a company's earnings distributed to its shareholders, typically in cash or additional stock.

Drawing Account

A separate account used to track the amount of money or assets taken out of a business by its owners for personal use.

Separate Capital Account

An account used in partnerships and sole proprietorships that shows the owner's original investment plus any retained earnings or minus any losses and withdrawals.