An Externality Refers to the Idea That

question 108

Multiple Choice

An externality refers to the idea that

• A) explicit costs differ from implicit costs.
• B) decision-makers do not internalize all the costs.
• C) we cannot do anything that does not affect other people.
• D) private and internal costs differ.

---

Definitions:

Incremental Cash Flows

The additional cash flow a business receives from taking on a new project, used to analyze the profitability of that project.

Investment Requirement

The total capital and resources needed for a project, investment, or venture to proceed.

Time Value

The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.

Payback Period

The time it takes for an investment to generate income or revenue equal to its cost, used to assess the feasibility or risk of an investment.