Multiple Choice
Which of the following best describes the basis of the diversification-for-stability argument for trade protection in the context of public solutions to externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following public solutions would best address the problem of waste in London?
A
Allowing private firms to voluntarily reduce waste
B
Eliminating all recycling programs
C
Implementing a city-wide tax on waste generation
D
Subsidizing the production of single-use plastics
Verified step by step guidance1
Step 1: Identify the nature of the problem — waste generation in London is a negative externality, meaning the social cost of waste is higher than the private cost borne by individuals or firms.
Step 2: Understand that private firms voluntarily reducing waste may not be sufficient because they do not internalize the full social cost, leading to under-provision of waste reduction efforts.
Step 3: Recognize that eliminating recycling programs would likely worsen the problem by reducing waste management efficiency and increasing environmental harm.
Step 4: Analyze the effect of subsidizing single-use plastics, which would encourage more waste generation, thus exacerbating the externality.
Step 5: Conclude that implementing a city-wide tax on waste generation aligns private incentives with social costs by making waste producers pay for the externality, thereby encouraging waste reduction and addressing the problem effectively.
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