Assume That Emissions from Electric Utilities Contribute to Pollution in the Form

question 13

Multiple Choice

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

• A)The equilibrium in the market is not efficient; the marginal benefit from electricity is greater than the marginal social cost.
• B)A deadweight loss occurs; at equilibrium the additional social cost of production is greater than the additional benefit to consumers.
• C)The equilibrium in the market is not efficient; because of the cost of the acid rain, economic efficiency would be greater if more electricity were produced.
• D)The equilibrium in the market is not efficient; consumer surplus is equal to producer surplus.

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Definitions:

Interest Tax Shield

A reduction in taxable income resulting from deductible interest expenses, typically from debts.

Tax Rate

The proportion of income or profits on which individuals or corporations pay taxes.

Optimal Capital Structure

The proportional mix of debt and equity financing that minimizes a company's cost of capital and maximizes its value.

Market Price

The market's ongoing price for an asset or service available for sale or purchase.