ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The market will adjust automatically to equate marginal social costs and marginal social benefits.
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Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs.
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Marginal private costs will exceed marginal social costs, but the government can correct the problem.
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Producers should be subsidized so that they will produce more of the good.
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Detailed explanation-1: -Which of the following is true when there are negative externalities associated with the production of a good? Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs.
Detailed explanation-2: -Negative production externalities occur when the production process results in a harmful effect on unrelated third parties. For example, manufacturing plants cause noise and atmospheric pollution during the manufacturing process.
Detailed explanation-3: -Which of the following is true? If consumption of a good gives rise to a negative externality, it can be internalized by subsidizing the purchase of the good. (Correct) If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.
Detailed explanation-4: -Pollution is a well-known negative externality.