Question

16. Which of the following is an example of a negative externality? A. An increase in the value of land you own when a nearby development is completed B. The costs paid by a company to build an automated factory C. Falling property values in a neighborhood where a disreputable nightclub is operating D. The higher price you pay when you buy a heavily advertised product

Answer 1

Answer:

C. Falling property values in a neighborhood where a disreputable nightclub is operating

Explanation:

A good has negative externality if the costs to third parties not involved in production is greater than the benefits. an example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced. Government can discourage the production of activities that generate negative externality by taxation. Taxation increases the cost of production and therefore discourages overproduction. Tax levied on externality is known as Pigouvian tax.

Government can regulate the amount of externality produced by placing an upper limit on the amount of negative externality permissible

As a result of the activities of the night club, third parties (houses) are negatively affected. This is an example of negative externality