Multiple Choice
Which of the following statements best describes the relationship between social cost and external cost?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following best explains why some economists argue that early child care generates an external benefit to society?
A
Early child care improves children's future productivity, benefiting society beyond the families who pay for the service.
B
Early child care only benefits the children and their families, with no impact on the broader society.
C
Early child care leads to higher government spending, which is a negative externality for taxpayers.
D
Early child care increases the private costs for families, reducing overall demand for child care services.
Verified step by step guidance1
Step 1: Understand the concept of externalities in microeconomics. An externality occurs when a decision causes costs or benefits to third parties who are not directly involved in the transaction.
Step 2: Identify the difference between private benefits/costs and social benefits/costs. Private benefits/costs affect only the individual or firm involved, while social benefits/costs include effects on society as a whole.
Step 3: Analyze how early child care might generate external benefits. Consider that early child care can improve children's future skills and productivity, which benefits society beyond just the families paying for the service.
Step 4: Evaluate the answer choices by checking which one reflects a positive externality, i.e., a benefit to society beyond the private benefits to families.
Step 5: Conclude that the correct explanation is that early child care improves children's future productivity, creating benefits that extend to society, which is why some economists argue it generates an external benefit.
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