Chapter 11

Question 1

By gov placing indirect taxation on products with negative externalities

how does this correct externalities in consumption

Answer 1

by placing an additional tax on the product,
the government can force suppliers to increase the price of their goods to consumers. This increase in price
should lead to a reduction in demand.

Question 2

By gov giving subsides on products with positive externalities

how does this correct externalities in consumption

Answer 2

by assisting businesses in the cost of production, the
government can encourage those firms to reduce the price of their products to consumers. In turn, this
reduction in price should lead to an increase in demand. This may help increase the demand for products
with positive externalities.

Question 3

Laws and regulations corrects externalities in consumption how

Answer 3

– the government can implement laws and regulations to restrict consumption of
goods with negative externalities. F

Question 4

Government campaigns corrects externalities in consumption how

Answer 4

the government can encourage consumption of goods with positive externalities
and discourage consumption of goods with negative externalities through campaigns and advertising.
There are various campaigns aimed at encouraging people to eat more healthily and to take exercise more
often.

Question 5

Nudges corrects externalities in consumption how

Answer 5

the government can also use behavioural ‘nudges’, or non-price-based activities that encourage
people to change their consumption behaviour

Question 6

State provision corrects externalities in consumption how

Answer 6

in some cases, products with positive externalities may just not be provided in sufficient
quantities in a free market economy. In these cases, the government may choose to provide the product.

Question 7

Government policies to correct externalities in production:

Laws and regulation

Answer 7

the government can set in place laws that either prevent businesses from polluting
or just fine a business if they contravene laws.

Question 8

Government policies to correct externalities in production:

Subsides on products with positive externalities

Answer 8

by reducing business’s cost of production through
subsidies, the government can encourage those firms to reduce the price of their products to consumers.
In turn, this reduction in price should lead to an increase in demand. This may help increase the demand
for products with positive externalities

Question 9

Government policies to correct externalities in production:

Property Rights

Answer 9

– the government can give an individual or a business property rights so that these people
are able to charge a polluter of their property.