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Which of the following is a good example of a good or service providing the economy...

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skyler89 | Student, College Sophomore | Honors

Posted October 2, 2012 at 4:47 PM via web

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Which of the following is a good example of a good or service providing the economy with a negative externality?

a textbook

an automobile

a sewage system

an audit of a business firm's books

out of the four which one is a good example?


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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 2, 2012 at 5:07 PM (Answer #1)

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Of the choices offered, the one most likely to inflict negative externalities on the economy is an automobile.  Negative externalities occur when an economic transaction imposes costs on people who are not party to the transaction.  In other words, if you buy a car, negative externalities ensue because your purchase imposes costs on other people.

There are at least two ways in which this is true.  First, cars pollute the air.  The costs of dealing with the pollution (treating people who have respiratory problems exacerbated by pollution, dealing with global warming, etc) must be borne by society at large.  They are not included in the price of the car.  Second, cars cause traffic.  This can mean that taxpayers have to pay for more roads.  In both cases, your purchase of a car has imposed costs on others.  Therefore, a car can impose negative externalities on a society.

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