Multiple Choice
Which of the following mitigation tactics could reduce the economic risk associated with negative externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is considered a negative externality beyond the control of a business?
A
Increased product quality
B
Employee training programs
C
Air pollution caused by factory emissions
D
Government subsidies for research
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a third party is affected by the actions of a business or individual, without this effect being reflected in market prices.
Step 2: Differentiate between positive and negative externalities. A positive externality benefits third parties, while a negative externality imposes costs on them.
Step 3: Identify which options represent externalities. Increased product quality and employee training programs generally benefit the business or its direct stakeholders, so they are not externalities.
Step 4: Recognize that government subsidies for research are interventions by the government, not externalities caused by the business itself.
Step 5: Conclude that air pollution caused by factory emissions is a negative externality because it imposes costs on society (such as health and environmental damage) beyond the control of the business and is not reflected in the factory's production costs.
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