"If Production of a Good Creates an External Cost, Then

question 285

Essay

"If production of a good creates an external cost, then, when production is such that the marginal private costs are equal to the marginal private benefits, the market outcome will be inefficient." Explain whether this assertion is correct or incorrect.

---

Definitions:

Par Preferred Stock

Preferred stock with a nominal value assigned in the corporate charter, which determines the issue price and face value for dividend calculations.

Par Common Stock

The nominal or face value assigned to a share of common stock, as stated in the corporate charter.

Market Value

The immediate market value at which one can buy or sell an asset or service.

Dividend

A portion of a company's earnings that is distributed to shareholders, typically in the form of cash or additional stock, as a reward for investing in the company.