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:

Prime Rate

Rate of interest that banks charge their most creditworthy customers.

Mosaic Law

A collection of laws, moral codes, and religious instructions attributed to Moses in the Jewish and Christian traditions, forming the basis of biblical law.

Koran

The holy book of Islam, believed to be the word of God (Allah) as revealed to the Prophet Muhammad.

Interest

The cost of borrowed funds.