Multiple Choice
Which of the following best describes the difference between tradable allowances and a Pigovian tax in addressing negative externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is an economic challenge related to international business arising from externalities?
A
Eliminating all tariffs and trade barriers
B
Ensuring perfect competition in all markets
C
Guaranteeing constant returns to scale in production
D
Managing the impact of negative externalities, such as pollution, across borders
Verified step by step guidance1
Understand the concept of externalities: Externalities occur when a third party is affected by the economic activities of others, without this effect being reflected in market prices. They can be positive or negative.
Recognize that international business can create externalities that cross national borders, such as pollution, which may not be adequately controlled by any single country.
Identify that economic challenges related to international business and externalities involve managing these cross-border effects, especially negative externalities like environmental damage.
Compare the given options to see which one directly relates to externalities: eliminating tariffs, ensuring perfect competition, and guaranteeing constant returns to scale do not directly address externalities.
Conclude that managing the impact of negative externalities, such as pollution across borders, is the economic challenge related to international business arising from externalities.
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