Multiple Choice
The government can internalize a negative externality by:
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is an issue related to distribution that is commonly monitored by the government in the context of public solutions to externalities?
A
Income inequality
B
Consumer preferences
C
Technological innovation
D
Market efficiency
Verified step by step guidance1
Understand the concept of externalities: Externalities occur when a third party is affected by the actions of others, leading to market outcomes that may not be socially optimal.
Recognize that governments intervene in markets with externalities to correct inefficiencies and improve social welfare, often through public solutions such as taxes, subsidies, or regulations.
Identify that distributional issues refer to how economic benefits and burdens are shared among different groups in society, which is a key concern for governments when designing policies.
Analyze the options given: Consumer preferences, technological innovation, and market efficiency relate to market functioning and outcomes, but income inequality directly concerns how wealth and resources are distributed across individuals or groups.
Conclude that income inequality is the distribution-related issue commonly monitored by governments in the context of public solutions to externalities, as policies often aim to address both efficiency and equity.
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