Multiple Choice
Which of the following is an example of crowding out in the context of externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is NOT an example of a negative externality?
A
A neighbor planting trees that improve air quality
B
A car emitting exhaust that affects public health
C
A company dumping waste that harms wildlife
D
A factory polluting a river used by local residents
Verified step by step guidance1
Step 1: Understand the concept of a negative externality. A negative externality occurs when an economic activity imposes a cost on third parties who are not involved in the activity, such as pollution or noise that harms others.
Step 2: Analyze each option to determine if it represents a cost imposed on others without compensation. For example, a car emitting exhaust affects public health negatively, which is a classic negative externality.
Step 3: Evaluate the option about a company dumping waste that harms wildlife. This also imposes harm on others (wildlife and potentially people), so it is a negative externality.
Step 4: Consider the factory polluting a river used by local residents. This pollution negatively affects residents who rely on the river, so it is a negative externality.
Step 5: Examine the option about a neighbor planting trees that improve air quality. Since this action benefits others by improving air quality, it is a positive externality, not a negative one.
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