Multiple Choice
Which of the following is a reason a government might restrict trade as a public solution to externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
In the context of public solutions to externalities, firms that do as little as possible to address social or environmental problems are typically taking which stance?
A
Regulatory compliance stance
B
Proactive stance
C
Free rider stance
D
Corporate social responsibility stance
Verified step by step guidance1
Understand the concept of externalities: Externalities occur when a firm's actions affect third parties not directly involved in the transaction, often leading to social or environmental problems.
Recognize the different stances firms can take in response to externalities: These include regulatory compliance (meeting minimum legal requirements), proactive stance (going beyond legal requirements), corporate social responsibility (actively contributing to social good), and free rider stance (doing as little as possible).
Identify the 'free rider stance': This stance refers to firms that avoid taking responsibility for addressing externalities, relying instead on others to bear the costs or efforts of solving social or environmental issues.
Compare the options given: Since the question asks about firms doing as little as possible, the free rider stance fits best because it implies minimal effort and reliance on others.
Conclude that the free rider stance is the correct answer because it describes firms that do not actively engage in solving externalities and instead benefit from others' efforts without contributing themselves.
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