A System of Interrelated Ideas Used to Explain a Set

question 32

Multiple Choice

A system of interrelated ideas used to explain a set of observations is called

• A) a theory.
• B) an empirical set.
• C) a hypothesis.
• D) a sociohistorical context.

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Definitions:

Externalities

Externalities are unintended side effects of economic activity affecting third parties not directly involved in the transaction, which can be either positive or negative.

Pollution Permits

Legal rights granted by governments to emit a specific amount of pollutants into the environment.

Corrective Tax

A tax designed to incentivize socially desirable behavior, often used to correct for the negative externalities of an action or consumption.

Coase Theorem

A principle that asserts that if private parties can bargain over the allocation of resources without cost, they can solve the problem of externalities on their own.