Chapter 10 - Externalities

Question 1

Externality

Answer 1

The result of something that affects third parties, not intended to affect them

Can be a positive or negative externality

Question 2

Internalizing the Externality

Answer 2

When there is a negative externality the government might impose something to make them “pay” for this externality. Therefore they are internalizing it.

Question 3

Positive and Negative Externalities

Answer 3

Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a smaller quantity than is socially desirable. To remedy the problem, the government can internalize the externality by taxing goods with negative externalities and subsidizing goods with positive externalities.

Question 4

Regulations

Answer 4

Government can set rules against certain externalities

Question 5

Corrective Taxes and Subsidies

Answer 5

A government can give money to incentivize certain actions to prevent or further externalities

Question 6

Coase Theorem

Answer 6

People can come to solutions by just talking to each other nicely