Government correctes negative externalities through taxation
Business Economics
Consider the following questions, and determine if they are true or false.
1) the perfectly competitive market may be inefficient if there are negative externalities present in the market.
2) the perfectly competitive market may be innefficient if there are positive externalities present in the market.
3) In general, the presence of negative externalities are bad for the economy, whle the presense of positive externalities are good.
4) In order to correct for a negative production externality, the government can tax either the consumer or the producer.
5) In general, the government correctes negative externalities through taxation.
6) In general, the government corrects positive externalities through subsidies.
7) Suppose that your cousin works at a music store, and every day comes home with a new instrument to play loudly at 2AM. This is an example of a negative production externality.
8) Suppose that Professor Hodges moves to a new apartment. Every morning he is awoken by the smell of cow flatulence due to the local cow industry. To the professor, the cow industry is an example of a negative production externality.
