120 seconds . D) appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level. Taxing external costs to society is not new. The concept of externality was first developed by economist Arthur Pigou in the 1920s. However, if we add external costs, the socially efficient output is Q1, at point B. D) consumer surplus is not maximized. Therefore there is under-consumption of the positive externality. • We will also cover, Future Worth analysis, capitalized cost, payback period, and bond sunk cost. Cigarettes for example are taxed to cover their external health and social costs. Q. External costs could in principle lead to a market failure-- when certain transactions or activities occur even when the external costs of those activities exceed the benefits. An externality is an economic term referring to a cost or benefit incurred or received by a third party who has no control over how that cost or benefit was created. Given this data, the external benefits of the must be more than $100m because approval would require social benefit > social cost. Smokers and cigarette companies rail against these taxes but most people agree that it isn’t fair for society to pay these external costs. The above 7 external factors affecting business are the main ones that I felt affect a business more so don’t be surprised if you come across several other external factors affecting business as you surf the web.. In making its decision it calculates private costs at $700m, private benefits at $800m and external costs at $200m. external cost. opportunity cost . Curve X, because if there is a negative externality, external costs are associated with it: social costs = external costs + private costs, therefore the marginal social cost curve must lie above the marginal private cost curve. a. there is market failure. • In chapter 5, techniques for comparing two or more mutually exclusive alternatives by the present worth method are treated. B) designed to encourage activities generating external benefits. C) appropriate when the marginal social cost curve is above the marginal cost of production curve. 120 seconds . C) social surplus is maximized. fixed cost. PRESENT WORTH ANALYSIS • So Far, Present worth computations have been made for one project or alternative. SURVEY . Note that the presence of external costs does not result in market failure if the external cost is less than the benefit from the activity. d. the market convoeys the full costs of production. B. In a free market, consumption will be at Q1 because demand = supply (private benefit = private cost ) However, this is socially inefficient because at Q1, social marginal cost < social marginal benefit. Air pollution from motor vehicles is an example of a negative externality. External costs should be directed at the users. 8. sunk cost. Expert Answer 100% (1 rating) Previous question Next question Get more help from Chegg. Tags: Question 21 . In economics, an externality is a cost or benefit that is imposed on a third party who did not agree to incur that cost or benefit. Ans: B Difficulty: Easy Skill Descriptor: Concept-Based Topic: External Costs, External Benefits, and Efficiency 35. The best course of action against the external factors affecting business environment would be to always be prepared to deal with any and every possible outcome. 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