Multiple Choice
Which of the following could lead to a positive externality on the international scale?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following activities results in a positive externality?
A
A company dumps waste into a river
B
A factory emits pollution that affects nearby residents
C
A homeowner plants trees that improve air quality for the neighborhood
D
A person smokes in a public park
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a person's or firm's actions affect the well-being of a bystander and this effect is not reflected in market prices.
Step 2: Differentiate between positive and negative externalities. A positive externality provides a benefit to others, while a negative externality imposes a cost on others.
Step 3: Analyze each activity to determine if it creates a positive or negative externality. For example, dumping waste or emitting pollution typically harms others, indicating negative externalities.
Step 4: Identify the activity that benefits others without compensation. Planting trees that improve air quality benefits the neighborhood, which is a positive externality.
Step 5: Conclude that the activity resulting in a positive externality is the homeowner planting trees that improve air quality for the neighborhood.
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