Multiple Choice
Why might a firm create a joint venture when entering a new geographic market?
113
views
7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is not a public solution to externalities?
A
Pigovian taxes
B
Tradable permits
C
Perfect competition
D
Subsidies for positive externalities
Verified step by step guidance1
Step 1: Understand what externalities are — they are costs or benefits caused by a producer or consumer that are not reflected in market prices, leading to market failure.
Step 2: Recognize that public solutions to externalities are government interventions designed to correct these market failures by aligning private incentives with social costs or benefits.
Step 3: Identify common public solutions: Pigovian taxes (taxes on negative externalities), subsidies for positive externalities, and tradable permits (market-based approach to limit negative externalities).
Step 4: Understand that perfect competition is a market structure characterized by many buyers and sellers with no single agent able to influence prices, and it is not a government intervention or policy tool to address externalities.
Step 5: Conclude that since perfect competition is a market condition rather than a public policy or solution, it is not considered a public solution to externalities.
Related Videos
Related Practice
