Multiple Choice
In the context of externalities and social costs, the United States has demanded that China reduce overcapacity in which industry?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following activities is most likely to create a positive externality?
A
Getting vaccinated against a contagious disease
B
Dumping waste into a river
C
Driving a car during rush hour
D
Smoking cigarettes in public places
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a person's actions affect the well-being of a bystander and this effect is not reflected in market prices. Externalities can be positive (beneficial) or negative (harmful).
Step 2: Identify the nature of each activity listed. For example, dumping waste into a river typically harms others by polluting the environment, which is a negative externality.
Step 3: Analyze the activity of getting vaccinated against a contagious disease. When a person gets vaccinated, they reduce their own risk of illness and also reduce the chance of spreading the disease to others, which benefits society.
Step 4: Recognize that this benefit to others, which is not compensated by the market, is a positive externality because it improves overall social welfare beyond the individual’s private benefit.
Step 5: Compare this with the other options (driving during rush hour and smoking in public), which generally impose costs on others (negative externalities), confirming that getting vaccinated is the activity most likely to create a positive externality.
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