Test Prep For AP® Courses
Which of the following is an example of a negative externality?
- A large computer company pays a settlement based on an anti-trust suit.
- Your neighbor adds a new patio to their house, slightly raising your home’s value.
- The government imposes a tariff on automobiles.
- The government decides to increase subsidies for higher education.
- A manufacturer pollutes the local river with waste generated from steel production.
From a social efficiency perspective, markets tend to ____________ goods that impose negative externalities if left unregulated.
- produce the correct amount of
- charge too much for
Cap-and-trade, clearer defined property rights, and pollution charges are examples of addressing negative externalities through ____________ reforms.