When There Is an Externality in a Market

question 214

Multiple Choice

When there is an externality in a market,

• A)the externality will move the market to an economically efficient equilibrium.
• B)the externality will cause the market price to be less than or greater than the equilibrium price.
• C)the government should use price controls to enable the market to reach equilibrium.
• D)government intervention may increase economic efficiency.

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Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to its net profit or loss.

Income Tax Expense

The cost incurred by businesses or individuals due to tax obligations on earned income.

Corporations Proprietorships

Business entities where corporations are legally independent from their owners and proprietorships are owned and run by one individual, with no legal distinction between the owner and the business.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to be reinvested in its core business or to pay debt.