Question

If the consumption of a good or service generates NEGATIVE externalities or benfits to society, then which of the following applies? (Check all that apply.) O a Market forces alone may lead to more consumption of the good or service than society would need or want. b The government can tax consumption of the good to disincentivize its purchase in order that society be harmed less. O c The capitalist economic system reflects and accounts for externalities in the economic decision making of individuals and businesses. Polluting devices would be an example. The government can subsidize consumption of the good to increase purchase in order that society benefits. O f The capitalist economic system does not reflect or account for externalities in the economic decision making of individuals and businesses. Og Vaccines would be an example. h Market forces alone may lead to less consumption of the good or service than society would want or need for its benefit. O O OO OOO OO O O

Answer 1

Correct options: (a) , (b) , (d) , (f)

Reason: In case of negative externalities, free market produces more than the socially optimal level of output and one of the ways to reduce this output is to tax production of the good.

E.g. polluting devices create negative external cost on society