In a Market Economy, the Ideal Solution to the Problem

question 26

Multiple Choice

In a market economy, the ideal solution to the problem of externalities would be to:

• A) prohibit all production involving spillover costs.
• B) regulate both the amount people may consume and the price they pay for goods whose
• C) charge or tax producers of a good the precise marginal cost of the externality generated in production.
• D) offer subsidies to the industries causing a negative externality.

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Definitions:

Cost Of Living

The amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a particular place and time.

Base Year

A specific year chosen as a point of reference for comparing economic data, such as price levels, over time.

Inflation

The tempo at which the general price level of goods and services rises, leading to a fall in the ability to purchase.

Disinflation

A drop in the pace of inflation, showing that the rate at which prices of goods and services climb is slowing down.