Multiple Choice
Which of the following is a disadvantage that a firm may face when forming a strategic alliance?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following illustrates the concept of a negative externality?
A
A company provides free training to its employees, improving their skills.
B
A student receives a scholarship for academic achievement.
C
A homeowner plants a garden that increases neighborhood property values.
D
A factory emits pollution that harms the health of nearby residents.
Verified step by step guidance1
Step 1: Understand the concept of an externality. An externality occurs when a decision causes costs or benefits to third parties who are not involved in the decision-making process.
Step 2: Differentiate between positive and negative externalities. A positive externality provides benefits to others (e.g., improved skills, increased property values), while a negative externality imposes costs on others (e.g., pollution, noise).
Step 3: Analyze each option to identify whether it creates benefits or costs for third parties outside the transaction:
- Free training improves employees' skills, which is a positive externality.
- A scholarship benefits the student directly, with no external costs or benefits to others.
- A garden increasing neighborhood property values is a positive externality.
- Pollution from a factory harms nearby residents, imposing costs on third parties, which is a negative externality.
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