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- Subject
- Externality & Internalityeconomics-mcqs › externality-internality
- Published
- 1 Jun 2019
- Last updated
- 28 May 2026
Which public policy is most effective in addressing a negative externality by internalizing its social costs?
Multiple choice question for Externality & Internality. Select an option, then review the explanation below.
Explanation
To correct a negative externality, the government can impose a tax on the product responsible, which helps incorporate the external costs into its market price. Other approaches like government control or outright bans are less practical, while subsidies would encourage production, worsening the externality.
More Externality & Internality MCQs
Practice related questions from the same subject.
- 1.What is the primary function of tradable pollution permits?
- 2.The gas-guzzler tax imposed on new vehicles with poor fuel efficiency serves as an example of which economic concept?
- 3.Roberto and Thomas share a university dorm room. Roberto enjoys playing loud music, valuing it at €100, while Thomas prefers silence, valuing peace at €150. Assuming Roberto has the legal right to play loud music and there are no costs involved in negotiation, which of the following best describes an efficient outcome to this externality issue?
- 4.Which of the following is not classified as a transaction cost borne by parties when negotiating to address a pollution externality?
- 5.According to the Coase theorem, under what condition can private individuals effectively resolve externality issues?