Suppose That the XYZ Industry Produces a Product That Results

question 265

Multiple Choice

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

• A) resources are under-allocated to the industry.
• B) the equilibrium market price of the product includes the external costs borne by society.
• C) resources are over-allocated to the industry.
• D) at the market price, quantity demanded is less than quantity supplied.

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Definitions:

Monthly Interest Rate

The interest rate expressed as a monthly percentage, reflecting the cost of borrowing or the earnings on savings for one month.

Credit Policy

Guidelines that a company follows to determine credit terms for customers, which can affect the company's cash flow and bad debt levels.

Reorder Point

The inventory level at which a new order should be placed to replenish stock before it becomes too low, calculated based on lead time and sales velocity.

Safety Stock

Extra inventory held to guard against shortages due to fluctuations in demand or supply.