Multiple Choice
Which of the following is an example of a negative externality associated with automobile manufacturing?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Dumping occurs in which of the following situations?
A
A government subsidizes production to encourage exports.
B
Consumers receive additional benefits from a product that are not captured by the producer.
C
A company sells its products below cost in a foreign market to gain market share.
D
A firm disposes of waste in a river, imposing costs on others not reflected in the market price.
Verified step by step guidance1
Understand the concept of dumping in international trade: Dumping occurs when a company sells its products in a foreign market at a price below its cost of production or below the price in its domestic market, often to gain market share or eliminate competition.
Analyze each option in the problem to see if it fits the definition of dumping:
Option 1: A government subsidizes production to encourage exports. This involves government support but does not necessarily mean selling below cost; it is related to export subsidies, not dumping directly.
Option 2: Consumers receive additional benefits from a product that are not captured by the producer. This describes positive externalities, not dumping.
Option 3: A company sells its products below cost in a foreign market to gain market share. This matches the definition of dumping because the firm is pricing below cost in a foreign market.
Option 4: A firm disposes of waste in a river, imposing costs on others not reflected in the market price. This describes a negative externality, not dumping.
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