For a Government Subsidy on a Good with an External

question 292

Multiple Choice

For a government subsidy on a good with an external benefit to result in the efficient amount of output being produced,what must be done?

• A) The size of marginal external benefit must be accurately determined.
• B) The government must produce the product.
• C) Private production and private consumption must both be directly subsidized.
• D) The quantity demanded must be decreased to the efficient amount.
• E) Private production without the subsidy must be prohibited.

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Definitions:

Overhead Variance

The difference between the actual overhead incurred and the overhead allocated to production during a given period.

Flexible Budget

A projection of budget data for various levels of activity.

Overhead Applied

The portion of overhead costs allocated to individual products or job orders based on a predetermined rate.

Labor Price Variance

This is the difference between the actual cost of labor and the standard cost, indicating how much more or less was paid for labor than expected.