Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Individuals ignore externalities and only focus on personal utility.
B
Externalities can lead to a misallocation of resources, impacting overall utility.
C
All externalities are positive, thus always increasing utility.
D
Individuals are completely unaffected by the choices of others.
Understanding the Answer
Let's break down why this is correct
Answer
Externalities are effects of a person's actions that impact others, either positively or negatively, without the person considering these effects. For example, if someone decides to drive a car, they might enjoy the convenience, but they also contribute to air pollution, affecting the health of people nearby. This pollution is a negative externality that the driver might not think about, and it can lead to less overall happiness for the community. When making daily decisions, individuals often focus on their own satisfaction, but externalities can change the overall utility for everyone involved. Understanding these effects can help people make better choices that consider not only their own happiness but also the well-being of others around them.
Detailed Explanation
Externalities can change how resources are used. Other options are incorrect because Some think people only care about their own happiness; Not all externalities are good.
Key Concepts
utility maximization
externalities
Topic
Microeconomics of Daily Decisions
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.