Aaron Has a Tree in Which Bats Like to Perch

question 17

Multiple Choice

Aaron has a tree in which bats like to perch.He is worried his children will catch a disease from the droppings if they play in the garden, but knows the droppings are also good fertiliser for the garden.These effects of the bats perching in the trees are examples of:

• A)why it is complicated to devise policies for externalities
• B)negative externalities
• C)both positive and negative externalities
• D)why governments should leave the market to find solutions to externalities

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Definitions:

Transaction Costs

The expenses incurred when buying or selling goods or services, beyond the price of the goods.

Opportunity Cost

The value of the next best alternative forgone as the result of making a decision.

Voluntary Exchange

A transaction where two parties trade goods or services by mutual agreement without coercion.

Transaction Costs

Expenses incurred during the buying or selling process, not limited to the price of the good, like fees, taxes, or other costs associated with the transaction.