Asked by Teresa Navarro P on May 08, 2024
Verified
In the presence of negative externalities, ________ is produced and in the presence of positive externalities, ________ is produced.
A) too little of the good; too much of the good
B) too much of the good; too little of the good
C) too much of the good; the right amount of the good
D) the right amount of the good; too little of the good
Negative Externalities
A situation where a third party suffers from a decision or action made by others, typically not reflected in the market price.
Positive Externalities
Benefits enjoyed by third-party individuals or the society at large, which result from an economic activity but are not reflected in the market prices.
- Identify the distinctions between negative and positive externalities and understand their effects on societal welfare.
- Elucidate the mechanism through which externalities contribute to the inefficient use of resources without government intervention.
Verified Answer
KS
Kelly StringbergMay 13, 2024
Final Answer :
B
Explanation :
In the presence of negative externalities (e.g., pollution), producers do not bear the full cost of production, leading to overproduction. Conversely, with positive externalities (e.g., education), not all benefits are captured by the producer, leading to underproduction.
Learning Objectives
- Identify the distinctions between negative and positive externalities and understand their effects on societal welfare.
- Elucidate the mechanism through which externalities contribute to the inefficient use of resources without government intervention.