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
Tariffs and subsidies are both types of:
A
government interventions in markets
B
private goods
C
positive externalities
D
market failures
Verified step by step guidance1
Understand the definitions of each option: Private goods are goods that are both excludable and rival in consumption; positive externalities occur when a product or decision benefits a third party; market failures happen when the allocation of goods and services is not efficient.
Recognize that tariffs and subsidies are policies implemented by governments to influence market outcomes, either by protecting domestic industries (tariffs) or encouraging production/consumption (subsidies).
Identify that both tariffs and subsidies involve government action aimed at altering market behavior, which classifies them as government interventions in markets.
Eliminate other options by noting that tariffs and subsidies are not types of goods themselves, nor are they externalities or market failures, but rather tools used to address or influence these issues.
Conclude that the correct classification for tariffs and subsidies is 'government interventions in markets' because they are deliberate actions taken by governments to affect market outcomes.
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