Multiple Choice
Which of the following best describes the focus of a command-and-control approach to reducing pollution?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is NOT an example of a positive externality?
A
An individual receives a flu vaccine, reducing the spread of illness
B
A homeowner plants a garden that beautifies the neighborhood
C
A person restores a historic building, increasing local property values
D
A company pollutes a river, affecting downstream users
Verified step by step guidance1
Step 1: Understand the concept of a positive externality. A positive externality occurs when an individual's or firm's actions result in benefits to others that are not reflected in market prices.
Step 2: Analyze each option to determine if it creates benefits for others beyond the individual or firm involved. For example, a flu vaccine reduces disease spread, benefiting others; a garden beautifies the neighborhood, improving others' enjoyment; restoring a historic building can increase property values, benefiting neighbors.
Step 3: Identify the option that does not create a benefit for others but instead imposes a cost. Pollution typically harms others by degrading the environment or health, which is an example of a negative externality, not a positive one.
Step 4: Conclude that the option involving pollution is NOT a positive externality because it imposes external costs rather than benefits.
Step 5: Summarize that positive externalities increase social welfare by providing unpriced benefits, whereas negative externalities reduce social welfare by imposing unpriced costs.
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