Multiple Choice
Which of the following best describes how changes in the quality of a good can create externalities related to social benefits and social costs?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
The risks of doing business are most likely to be the highest in a country that:
A
offers stable political institutions and transparent regulations
B
has weak enforcement of property rights and frequent government intervention
C
encourages competition and innovation through effective policy
D
provides strong legal protection for contracts and property
Verified step by step guidance1
Step 1: Understand the concept of business risks in microeconomics, which often arise from uncertainty in the economic environment, including political, legal, and regulatory factors.
Step 2: Recognize that stable political institutions and transparent regulations typically reduce business risks by providing predictability and fairness in the market.
Step 3: Identify that weak enforcement of property rights and frequent government intervention increase uncertainty and risk because businesses cannot reliably protect their assets or anticipate government actions.
Step 4: Note that encouraging competition and innovation through effective policy generally lowers risks by fostering a dynamic and fair market environment.
Step 5: Understand that strong legal protection for contracts and property rights reduces risks by ensuring that agreements are enforceable and assets are secure, thus making the business environment more stable.
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