Multiple Choice
Which of the following is considered a negative externality associated with offshoring and outsourcing?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Why would setting the prices of natural resources at their true social cost likely increase recycling rates?
A
It decreases the demand for recycled materials by making them less competitive.
B
It subsidizes the extraction of natural resources, making recycling less attractive.
C
It makes using virgin resources more expensive, encouraging firms and consumers to recycle to save money.
D
It has no effect on recycling rates because prices do not influence consumer behavior.
Verified step by step guidance1
Understand the concept of 'true social cost' of natural resources, which includes not only the market price but also external costs such as environmental damage and depletion of resources.
Recognize that when prices reflect the true social cost, the cost of using virgin (newly extracted) natural resources increases because these external costs are internalized into the price.
Analyze how higher prices for virgin resources affect the relative cost of recycled materials, making recycled materials comparatively cheaper and more attractive to firms and consumers.
Consider the economic incentive: as using virgin resources becomes more expensive, firms and consumers are motivated to seek cost-saving alternatives, such as recycling existing materials.
Conclude that by increasing the cost of virgin resources through true social cost pricing, recycling rates are likely to increase because recycling becomes a more economically viable and attractive option.
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