Refer to the Above Supply and Demand Graph

question 148

Multiple Choice

Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S₁ is the optimal supply from the society's perspective. One solution to this externality problem is to:

• A) Give consumers a subsidy of the amount FG per unit
• B) Give producers a subsidy of the amount AB per unit
• C) Tax producers by the amount DE per unit
• D) Tax consumers by the amount EF per unit

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Definitions:

Quantity Variances

The difference between the expected and actual number of units used or produced, which can affect costing and budgeting assessments.

Price Variance

The difference between the actual price paid for a purchase and the standard or expected price, usually applied to direct materials or direct labor costs.

Quantity Variance

A measure of the difference between the expected and actual quantities used in production, affecting materials or labor.

Overhead Absorbed

The overhead rate multiplied by standard units of volume.