External Costs Occur Because

question 89

Multiple Choice

External costs occur because

• A) Private costs do not reflect the full costs to society.
• B) Government failure increases costs for the firm.
• C) All costs are absorbed by the firm.
• D) Firms make a choice other than the most cost-efficient production method. External cost is a cost of a market incurred by a third party.

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Definitions:

MPC

Marginal Propensity to Consume - the proportion of any additional income that is spent on consumption rather than being saved.

Consumption

The act of using goods and services for personal use, often considered in economic terms as an indicator of economic health.

Disposable Income

Fiscal space for households' spending and saving maneuvers after settling income taxes.

MPS

Marginal Propensity to Save, which measures the fraction of additional income that is saved rather than spent on consumption.