Externalities can be:
Options
APositive only
BNegative only
CPositive or Negative
DNeutral
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Public FinancePYQ - May 2018 (Inter)Question 133 of 20
All Questions Correct Answer
✅ Option c — Positive or Negative
All Options:
- APositive only
- BNegative only
- CPositive or Negative
- DNeutral
Detailed Solution & Explanation
To understand externalities, we need to consider their impact on society.
• Externalities refer to the spillover effects of production or consumption that affect third parties, either positively or negatively.
• These effects can be in the form of benefits or costs that are not reflected in the market price of a good or service.
• Positive externalities occur when the spillover effect benefits third parties, such as education or vaccination, which can lead to a more skilled workforce or a healthier population.
• Negative externalities, on the other hand, occur when the spillover effect harms third parties, such as pollution or noise, which can lead to environmental degradation or health problems.
The correct answer is right because externalities can indeed be both positive and negative, depending on the context.
• Options that suggest externalities can only be positive or only negative are incorrect because they do not account for the full range of possible spillover effects.
• For example, option A is incorrect because it ignores the negative externalities that can arise from certain economic activities, while option B is incorrect because it overlooks the positive externalities that can also occur.
About This Chapter: Public Finance
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Fiscal Policy, Budget, Market Failure
This chapter deals with government finances — how the government earns (taxation) and spends (expenditure) money. Key topics include Fiscal Policy, types of taxes (Direct and Indirect), the Union Budget, Public Debt, and the concept of Market Failure and how government intervention corrects it.
View Official ICAI SyllabusExam Strategy Tip
Focus on the difference between Revenue and Capital items in the budget. Understand Fiscal Deficit and its implications. Tax-related MCQs are commonly asked.
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