Explain why a producer who is causing external costs does not have the incentive to reduce these costs
What will be an ideal response?
The answer lies in the fact that the costs are external. These are not costs borne by the producer. The producer responds to the costs he or she must pay and external costs are paid by someone else. Hence the producer has no incentive to decrease the activity that is creating the external cost because the activity costs the producer nothing.
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Which of the following statements is true?
A) Right-handed people typically earn more than left-handed people. B) People who drink alcohol typically earn more than people who do not drink. C) People who played sports in high school typically earn less than people who did not play sports. D) People regarded as beautiful typically earn no more than people who are ordinary looking.
Which of the following is not included in the calculation of federal debt?
a. Debt held by banks b. Debt held by firms c. Debt held by the U.S. Treasury d. Debt held by households e. Debt held by foreign entities