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- Subject
- Externality & Internalityeconomics-mcqs › externality-internality
- Published
- 1 Jun 2019
- Last updated
- 28 May 2026
Explanation
To correct a negative externality, the government can impose a tax on the product responsible, which helps incorporate the external costs into its market price. Other approaches like government control or outright bans are less practical, while subsidies would encourage production, worsening the externality.
More Externality & Internality MCQs
Practice related questions from the same subject.
- 1.What is the primary function of tradable pollution permits?
- 2.The gas-guzzler tax imposed on new vehicles with poor fuel efficiency serves as an example of which economic concept?
- 3.Roberto and Thomas share a university dorm room. Roberto enjoys playing loud music, valuing it at €100, while Thomas prefers silence, valuing peace at €150. Assuming Roberto has the legal right to play loud music and there are no costs involved in negotiation, which of the following best describes an efficient outcome to this externality issue?
- 4.Which of the following is not classified as a transaction cost borne by parties when negotiating to address a pollution externality?
- 5.According to the Coase theorem, under what condition can private individuals effectively resolve externality issues?
- 6.What type of external effect is created when a person purchases a vehicle in a heavily trafficked city?
- 7.What is the effect of an unaddressed negative externality on the market quantity produced?
- 8.What results from the presence of a negative externality in a market?
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