ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the true cost of any economic activity
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are the negative spillover effects of production or consumption incurred by third parties for which no consumption is paid
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are the positive effects of production or consumption incurred by third parties for which consumption is paid
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are the true benefits of consumption or production
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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: -CLASS: A negative externality (or spillover cost) occurs if some of the costs of producing and consuming a product “spillover” onto a third party who does not benefit. Example: A paper manufacturer dumps toxic chemicals into a river killing the fish sport fishers seek.
Detailed explanation-4: -Negative production externality: When a firm’s production reduces the well-being of others who are not compensated by the firm. Negative consumption externality: When an individual’s consumption reduces the well-being of others who are not compensated by the individual.