Which of the Following Is True of a Negative Externality

question 98

Multiple Choice

Which of the following is true of a negative externality?

• A) Some costs are borne by a third party.
• B) The government can use subsidies to encourage firms to internalize the externality.
• C) The government must take over the production of this good so that the externality can be internalized.
• D) Some benefits accrue to a third party.
• E) Its existence always requires corrective measures by the government.

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Definitions:

Scientific Method

A systematic approach to research where a problem is identified, relevant data is gathered, a hypothesis is formulated from the data, and the hypothesis is empirically tested.

Behavioral Assumptions

Refer to the underlying presumptions about how individuals and institutions will behave or make decisions in economic models or theories.

Form Hypothesis

The process of developing a proposed explanation for a phenomenon, made as a starting point for further investigation.

Circular-Flow Model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers.