ECONOMICS
MARKET FAILURES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Altering incentives so that people take account of the external effects of their actions.
|
|
|
External benefits
|
|
|
External costs
|
|
|
None of the above
|
Detailed explanation-1: -A negative externality (also called “external cost” or “external diseconomy") is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or the consumption of a good or service.
Detailed explanation-2: -External costs (also known as externalities) refer to the economic concept of uncompensated social or environmental effects. For example, when people buy fuel for a car, they pay for the production of that fuel (an internal cost), but not for the costs of burning that fuel, such as air pollution.
Detailed explanation-3: -A negative externality occurs when a cost spills over. A positive externality occurs when a benefit spills over. So, externalities occur when some of the costs or benefits of a transaction fall on someone other than the producer or the consumer.
Detailed explanation-4: -An external cost is a cost not included in the market price of the goods and services being produced, i.e. a cost not borne by those who create it.
Detailed explanation-5: -Air pollution. Air pollution may be caused by factories, which release harmful gases to the atmosphere. Water pollution. Farm animal production.