Externalities arise because there is a divergence between ________ and _________?
Correct answer: B. private costs, social costs or benefits
- A. private costs, private benefits
- B. private costs, social costs or benefits
- C. social costs, social benefit
- D. insiders, outsiders
Explanation
An externality exists when private decision-makers do not bear all the costs or receive all the benefits of an action. The resulting divergence is between private costs and social costs or benefits.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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