Question

Dioxin emission that results from the production of paper is a good example of a negative externality because:

a. self-interested paper firms are generally unaware of environmental regulations.b. there are fines for producing too much dioxin.c. self-interested paper producers will not consider the full cost of the dioxin pollution they create.d. toxic emissions are the best example of an externality.

Answer 1

Option (c) is correct.

Step-by-step explanation:

There are two types of externality are as follows:

(a) Positive externality

(b) Negative externality

Negative externality occurs when a third person is affected by the engagement of two parties. It means that there is a reduction in the consumption function of the third person from the production of goods by the other parties.

In our case, a firm which produces paper and from this production of paper there is an emission of Dioxin which affect the consumption of nearest persons or firms.

Therefore, a paper producing firm have to consider all the externality while calculating the total cost.