Which of the following is true of externalities?
A)Positive externalities arise when an economic activity imposes costs on others who are not directly involved in the activity.
B)Negative externalities can be internalized by offering subsidies to the agents who generate such externalities.
C)Like public goods,externalities always result in a free rider problem.
D)Externalities may arise from either production or consumption of a good or service.

Question

Quizplus · Accepted Answer

Externalities can be positive or negative and can arise from both production and consumption of goods or services. Positive externalities are those that benefit third parties, while negative externalities harm them. Examples of negative externalities include pollution and traffic congestion. Internalizing externalities involves making those who generate the externalities bear the costs or receive the benefits. This is typically done through government intervention. Subsidies are one way to internalize some negative externalities. Free rider problems are more commonly associated with public goods, which are non-excludable and non-rival in consumption.

Which of the Following Is True of Externalities