If Only a Few People Are Affected by an Externality

question 15

Multiple Choice

If only a few people are affected by an externality, then it is likely that:

• A)Pigovian taxes will provide the most efficient solution to the externality
• B)command-and-control regulation will provide the most efficient solution to the externality
• C)a private solution to the inefficiency will occur
• D)a private solution will be very difficult to negotiate

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Definitions:

Substitute Goods

Products or services that can be used in place of each other, serving similar needs or purposes for consumers.

Income Elasticity Coefficient

A measure that shows how much the demand for a good or service changes in response to a change in consumers' income.

Recessions

are characterized by a significant decline in economic activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade.

Substitutes Goods

Products or services that can replace or be used in place of another to fulfill the same need or desire.