To Internalize a Negative Externality, an Appropriate Public Policy Response

question 54

Multiple Choice

To internalize a negative externality, an appropriate public policy response would be to

• A) have the government take over the production of the good causing the externality.
• B) ban the production of all goods creating negative externalities.
• C) tax the good.
• D) subsidize the good.

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Definitions:

Future Value

The worth of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Compounded Quarterly

Referring to interest that is calculated and added to the principal amount at the end of each quarter, leading to exponential growth.

Interest Charge

The cost of borrowing money on a loan or earned on interest-bearing accounts, calculated as a percentage of the principal sum.

Compound Interest

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.