Multiple Choice
Which of the following activities is most likely to generate a positive externality?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is an example of a negative externality associated with automobile manufacturing?
A
Increased profits for automobile manufacturers
B
Air pollution caused by factory emissions
C
Higher wages for factory workers
D
Improved transportation options for consumers
Verified step by step guidance1
Step 1: Understand the concept of a negative externality. A negative externality occurs when a third party experiences a cost or harm due to an economic activity, but this cost is not reflected in the market price.
Step 2: Analyze each option to identify if it imposes an external cost on others. Increased profits for manufacturers benefit the company and do not impose external costs, so it is not a negative externality.
Step 3: Consider air pollution caused by factory emissions. This pollution affects the health and environment of people who are not involved in the manufacturing process, representing a cost external to the market transaction.
Step 4: Evaluate higher wages for factory workers. This is a benefit to workers and does not impose a cost on third parties, so it is not a negative externality.
Step 5: Look at improved transportation options for consumers. This is a positive outcome for consumers and society, not a negative externality.
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