QQuestionEconomics
QuestionEconomics
"Which is an example of an externality?
A. The cost to restore habitat in previously destroyed areas.
B. The use of the atmosphere for air pollution.
C. Tax breaks for high-efficiency appliances.
D. Roads maintained with a tax on gasoline."
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Answer
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Step 1:I'll solve this problem step by step, focusing on the concept of externalities in economics.
Step 2:: Understanding Externalities
An externality is an economic cost or benefit that affects a third party who did not choose to incur that cost or benefit. These are side effects of economic activities that impact unrelated parties.
Step 3:: Analyzing the Options
Let's examine each option carefully: A. Cost to restore habitat in previously destroyed areas - This represents a direct cost of environmental restoration - Not an externality, but a planned environmental management expense B. Use of the atmosphere for air pollution - This is a classic example of a negative externality - Pollution affects people not directly involved in the economic activity - The environmental and health costs are borne by society, not the polluting entity C. Tax breaks for high-efficiency appliances - This is a government policy to incentivize energy conservation - Not an externality, but a deliberate economic intervention D. Roads maintained with a tax on gasoline - This is a direct user-fee system where road users pay for road maintenance - Not an externality, but a direct economic transaction
Step 4:: Identifying the Correct Answer
The clear example of an externality is option B: the use of the atmosphere for air pollution.
Final Answer
The use of the atmosphere for air pollution is an example of a negative externality. Explanation: Pollution creates costs for society (health issues, environmental damage) that are not directly paid for by the polluting industries, making it a classic externality.
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