Multiple Choice
Which of the following mitigation tactics could reduce the economic risk associated with negative externalities?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is a disadvantage of globalization in the context of externalities, social benefits, and social costs?
A
It guarantees equal distribution of wealth among all countries.
B
It can lead to increased negative externalities such as pollution due to higher production and trade.
C
It always ensures that social benefits exceed social costs.
D
It eliminates the need for government intervention in markets.
Verified step by step guidance1
Step 1: Understand the concept of externalities, which are costs or benefits that affect third parties not directly involved in an economic transaction. Negative externalities impose social costs, while positive externalities provide social benefits.
Step 2: Recognize that globalization increases production and trade across countries, which can amplify both positive and negative externalities on a larger scale.
Step 3: Analyze how increased production and trade due to globalization might lead to higher negative externalities, such as pollution, because more goods are being produced and transported, often without adequate regulation.
Step 4: Evaluate the incorrect options by considering that globalization does not guarantee equal wealth distribution, does not always ensure social benefits exceed social costs, and does not eliminate the need for government intervention to manage externalities.
Step 5: Conclude that a key disadvantage of globalization in this context is the potential increase in negative externalities like pollution, which can impose greater social costs on society.
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