Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Negative externalities increase social costs, and government intervention is unnecessary.
B
Negative externalities decrease social costs, leading to more efficient market outcomes.
C
Negative externalities lead to an increase in social costs, necessitating government regulations to mitigate these effects.
D
Negative externalities have no impact on social costs, hence government intervention is irrelevant.
Understanding the Answer
Let's break down why this is correct
Answer
Negative externalities occur when a person's or company's actions have harmful effects on others that are not reflected in the costs of their activities. For example, if a factory pollutes the air, the surrounding community suffers from health issues and reduced quality of life, but the factory doesn't pay for these damages. This means that the true social cost of the factory's operations is higher than what it appears to be in the market. Government intervention is important here because it can help correct this market failure by imposing regulations, taxes, or fines on the polluter, making them accountable for the harm they cause. By doing so, the government can encourage businesses to reduce negative externalities and better align private costs with social costs, leading to a healthier environment for everyone.
Detailed Explanation
Negative externalities raise social costs. Other options are incorrect because This answer suggests that negative externalities don't need government help; This choice says negative externalities lower social costs, which is incorrect.
Key Concepts
social costs
government intervention
regulations
Topic
Negative Externalities and Market Failure
Difficulty
hard level question
Cognitive Level
understand
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