Multiple Choice
Which of the following is a disadvantage associated with the use of coal as an alternative source of energy, considering externalities related to social costs?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following are two ways trade barriers can hamper a firm's productive activities in the presence of externalities?
A
They reduce government subsidies and eliminate all external costs.
B
They lower social benefits and decrease consumer demand.
C
They guarantee higher profits and improve resource allocation.
D
They increase input costs and limit access to advanced technology.
Verified step by step guidance1
Understand the concept of trade barriers: Trade barriers are government-imposed restrictions such as tariffs, quotas, or regulations that limit international trade.
Recognize how trade barriers affect input costs: When trade barriers are in place, firms may face higher prices for imported inputs or raw materials, which increases their production costs.
Consider the impact on access to technology: Trade barriers can restrict a firm's ability to import advanced technology or machinery, limiting their productivity improvements and innovation.
Connect these effects to externalities: Externalities occur when a firm's actions have spillover effects on others. Trade barriers can exacerbate negative externalities by increasing costs and reducing efficiency, or they can prevent positive externalities by limiting technology diffusion.
Summarize why the correct answer is 'They increase input costs and limit access to advanced technology' because these two factors directly hamper a firm's productive activities in the presence of externalities.
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