Chapter 74, Problem 2MCQ

To determine

The correct source of a negative externality.

Answer to Problem 2MCQ

From the available options, the correct option is loud conversations in a library.

Explanation of Solution

The existence of a negative externality depends on the production of cost or on the consumption that negatively affects the third party or generates a cost for the third person. Therefore, the correct option is loud conversations in a library as it can disturb others. A beautiful view or national defense even provides a social benefit or positive externality and smokestack scrubbers also control pollution, which provides social benefit to others. Whereas, a decision to purchase is personal and does not affect the third person.

Therefore, the correct option is a.

Economics Concept Introduction

Introduction: Externality problems refer to the fundamental economic policy problems while firms do not internalize the indirect costs or indirect benefits from any of their economic transactions in the market.