Multiple Choice
Which of the following is a public solution to externalities that can be adapted to planned events such as sporting events?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
In the context of public solutions to externalities, a plan of action taken by the government to achieve a specific goal is best described as a:
A
guarantee
B
policy
C
service
D
regulation
Verified step by step guidance1
Understand the concept of externalities: 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.
Recognize the role of the government in addressing externalities: Since externalities can lead to market failure, the government often intervenes to correct these inefficiencies and achieve socially desirable outcomes.
Define what a 'policy' is in this context: A policy is a deliberate plan of action or set of guidelines implemented by the government to achieve a specific goal, such as reducing negative externalities or promoting positive ones.
Distinguish 'policy' from other options: Unlike a 'guarantee' (which is a promise or assurance), a 'service' (which is a direct provision of goods or assistance), or a 'regulation' (which is a specific rule or law), a policy encompasses the broader strategic approach taken by the government.
Conclude that the best description of a government plan of action to address externalities is a 'policy', as it represents the overarching framework guiding interventions.
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