ECONOMICS
MARKET FAILURES
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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False
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True
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Either A or B
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None of the above
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Detailed explanation-1: -A negative externality exists when a cost spills over to a third party. A positive externality exists when a benefit spills over to a third-party. Government can discourage negative externalities by taxing goods and services that generate spillover costs.
Detailed explanation-2: -A negative externality exists when the production or consumption of a product results in a cost to a third party. Air and noise pollution are commonly cited examples of negative externalities.
Detailed explanation-3: -An externality can be both positive or negative and can stem from either the production or consumption of a good or service. The costs and benefits can be both private-to an individual or an organization-or social, meaning it can affect society as a whole.
Detailed explanation-4: -For example, education is a positive externality of school because people learn and develop skills for careers and their lives. In comparison, negative externalities are a cost of production or consumption. For example, pollution is a negative externality that results from both producing and consuming certain products.