If Only a Few People Are Affected by an Externality

question 306

Multiple Choice

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

• A) corrective 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:

Federal Budget Surplus

The situation where a government's revenue exceeds its spending during a fiscal period.

National Debt

National debt is the total amount of money that a country's government has borrowed, by various means, including bonds and securities, from domestic or foreign sources.

MPC (Marginal Propensity To Consume)

Measures the proportion of additional income that a consumer spends on goods and services rather than saving.

GDP

GDP stands for Gross Domestic Product, which is an indicator of a nation's economic health, calculated by adding up the value of every good and service produced for a certain period.