Markets Tend to Underallocate Resources to the Production of a Good

question 335

Multiple Choice

Markets tend to underallocate resources to the production of a good when

• A) there are negative externalities.
• B) there are positive externalities.
• C) there are public goods produced.
• D) equilibrium occurs.

---

Definitions:

Denominator Activity Levels

Denominator activity levels refer to the levels of activity used to allocate fixed costs to products or services under activity-based costing or other costing methodologies.

Efficiency Variances

The difference between the actual amount of resources used in production and the standard amount expected, showing how efficiently resources are being used.

Volume Variances

are differences between the expected (budgeted) volumes of production or sales and the actual volumes, impacting revenue, costs, and profits.

Budget Variance

The difference between budgeted and actual amounts for a particular accounting category.