Multiple Choice
Which of the following best describes the marginal external cost and the socially optimal quantity in the presence of a negative externality?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following activities is most likely to generate a positive externality?
A
Getting vaccinated against a contagious disease
B
Dumping waste into a river
C
Driving during rush hour
D
Smoking cigarettes in public places
Verified step by step guidance1
Step 1: Understand the concept of externalities. Externalities occur when a person's actions affect the well-being of a bystander and these effects are not reflected in market prices. They can be positive (beneficial) or negative (harmful).
Step 2: Analyze each activity to determine if it creates a positive or negative externality. For example, dumping waste into a river typically harms others, so it is a negative externality.
Step 3: Consider 'getting vaccinated against a contagious disease.' This action not only protects the individual but also reduces the spread of disease to others, benefiting society. This is a classic example of a positive externality.
Step 4: Evaluate 'driving during rush hour' and 'smoking cigarettes in public places.' Both tend to impose costs on others, such as increased traffic congestion or health risks from secondhand smoke, which are negative externalities.
Step 5: Conclude that the activity most likely to generate a positive externality is 'getting vaccinated against a contagious disease' because it provides benefits beyond the individual to the wider community.
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