Multiple Choice
Which of the following is a negative externality associated with increased satellite usage worldwide?
83
views
7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is an example of a negative externality?
A
A neighbor planting flowers that improve the neighborhood's appearance
B
A consumer purchasing a product at its market price
C
Air pollution from a factory affecting nearby residents
D
A company providing free vaccinations to its employees
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a third party is affected by the actions of others, and this effect is not reflected in market prices.
Step 2: Differentiate between positive and negative externalities. A positive externality benefits third parties (e.g., improved neighborhood appearance), while a negative externality imposes costs on third parties (e.g., pollution).
Step 3: Analyze each option to identify whether it creates external costs or benefits for others outside the transaction:
- Neighbor planting flowers: likely a positive externality (improves neighborhood appearance).
- Consumer purchasing a product at market price: no externality, as the transaction is private and priced.
- Air pollution from a factory: negative externality, as it harms nearby residents without compensation.
- Company providing free vaccinations: positive externality, as it may reduce disease spread benefiting others.
Step 4: Conclude that the example of a negative externality is the air pollution from a factory affecting nearby residents, because it imposes an external cost on others.
Related Videos
Related Practice
