Multiple Choice
Which of the following is a public solution to negative externalities in microeconomics?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is a common criticism of the World Bank in addressing externalities?
A
It only provides loans to private corporations.
B
It sometimes funds projects that lead to environmental degradation.
C
It exclusively focuses on developed countries.
D
It does not collaborate with any governments.
Verified step by step guidance1
Step 1: Understand the role of the World Bank. The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects, often aimed at economic development and poverty reduction.
Step 2: Recognize what externalities are. Externalities occur when a third party is affected by the economic activities of others, either positively or negatively, without this effect being reflected in market prices. Negative externalities often include environmental damage.
Step 3: Analyze the criticism options. The World Bank is often criticized for funding projects that, while economically beneficial, may cause negative externalities such as environmental degradation. This means some projects may harm the environment, which is a common concern.
Step 4: Evaluate the incorrect options. The World Bank does not only provide loans to private corporations; it primarily works with governments. It does not exclusively focus on developed countries; its main focus is on developing countries. It also collaborates extensively with governments.
Step 5: Conclude that the common criticism related to externalities is that the World Bank sometimes funds projects leading to environmental degradation, which is a negative externality not always adequately addressed.
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