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Consider the following statements.
1. Externalities refer to the benefits a firm or an individual causes to another for which they are not paid
2. Externalities have the proper market in which they can be bought and sold
Which of these statements are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)None of them
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements. 1. Externalities refer to the bene...
- Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised).
- Externalities do not have any market in which they can be bought and sold. For example, let us suppose there is an oil refinery which refines crude petroleum and sells it in the market.
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Consider the following statements. 1. Externalities refer to the bene...
Externalities Explanation:
Externalities are a concept in economics that refers to the impact of one person's actions on the well-being of a bystander. It can be positive or negative and can affect individuals, firms, communities, or the environment. Here is an explanation of the given statements:
Statement 1:
- Correctness: True
- Explanation: Externalities refer to the benefits or costs that a firm or an individual causes to another party for which they are not compensated or charged. For example, if a factory pollutes a river and affects the water quality for downstream residents, it creates a negative externality because those residents bear the cost without being paid for it.
Statement 2:
- Correctness: False
- Explanation: Externalities do not have a proper market in which they can be bought and sold. Externalities are considered market failures because the costs or benefits are not reflected in the prices of goods or services. This leads to inefficiencies as the market does not account for the full social costs or benefits of production or consumption.
In conclusion, statement 1 is correct as it accurately describes externalities as unaccounted for benefits or costs imposed on others. Statement 2 is incorrect as externalities do not have a market mechanism for buying and selling.
Externalities are a concept in economics that refers to the impact of one person's actions on the well-being of a bystander. It can be positive or negative and can affect individuals, firms, communities, or the environment. Here is an explanation of the given statements:
Statement 1:
- Correctness: True
- Explanation: Externalities refer to the benefits or costs that a firm or an individual causes to another party for which they are not compensated or charged. For example, if a factory pollutes a river and affects the water quality for downstream residents, it creates a negative externality because those residents bear the cost without being paid for it.
Statement 2:
- Correctness: False
- Explanation: Externalities do not have a proper market in which they can be bought and sold. Externalities are considered market failures because the costs or benefits are not reflected in the prices of goods or services. This leads to inefficiencies as the market does not account for the full social costs or benefits of production or consumption.
In conclusion, statement 1 is correct as it accurately describes externalities as unaccounted for benefits or costs imposed on others. Statement 2 is incorrect as externalities do not have a market mechanism for buying and selling.
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