Multiple Choice
Which form of supply chain risk can be reduced by the use of effective contracts with penalties?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following statements best describes federal grants-in-aid in the context of public solutions to externalities?
A
They are direct payments from the federal government to private firms to subsidize production.
B
They are taxes imposed by the federal government to discourage negative externalities.
C
They are funds provided by the federal government to state or local governments to support programs that address externalities.
D
They are regulations set by the federal government that mandate specific production processes.
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.
Step 2: Recognize that public solutions to externalities often involve government intervention to correct market failures, such as taxes, subsidies, regulations, or grants.
Step 3: Define federal grants-in-aid as funds provided by the federal government to state or local governments to support specific programs or projects, often aimed at addressing public issues like externalities.
Step 4: Differentiate grants-in-aid from other government tools: they are not direct payments to private firms (which would be subsidies), nor are they taxes or regulations.
Step 5: Conclude that federal grants-in-aid are best described as funds given to lower levels of government to help finance programs that mitigate externalities, aligning with the correct statement.
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