Question

What is government’s role in controlling externalities in the American economy?A.Government tries to limit all externalities because they represent market failure.

B.Government tries to encourage all externalities so that the market will be competitive.
C.Government tries to encourage positive externalities and limit negative externalities.
D.Government tries to limit positive externalities and encourage negative externalities.

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Answer 1

Government tries to encourage positive externalities and limit negative externalities. A proposal to rezone land to allow for a new building project.

Answer 2

Government tries to encourage positive externalities and limit negative externalities.

Step-by-step explanation:

The microeconomic concept of externality consists of the explanation of the harmful or positive effects that an economic activity implies in the other economic agents. For example, coal production at the mills creates pollution that affects everyone. So pollution is a negative externality.

On the other hand, the positive externality occurs when the activity of a company or organization causes positive effects for society. For example, if an NGO acts in the treatment of addicts, acting in the place of the State, public money will remain in the hands of the government, which may be used in another area. This then is a positive externality.

Of course, governments act to curb negative externalities and stimulate positive externalities.