n the story of New England Wire and Cable, the company was in an unusual situati
ID: 2757128 • Letter: N
Question
n the story of New England Wire and Cable, the company was in an unusual situation of being worth more dead than alive. What economic principle was violated when Larry Garfield tried to get control of the firm, break it up, sell the assets, and make a profit?
Diminishing marginal return
Diminishing marginal utility of wealth
Non-positive marginal utility of wealth
Externalities
The law of one price
a.Diminishing marginal return
b.Diminishing marginal utility of wealth
c.Non-positive marginal utility of wealth
d.Externalities
e.The law of one price
Explanation / Answer
Solution.
Externalities
Externalities pose fundamental economic policy problems when individuals, households, and firms do not internalize the indirect costs of or the benefits from their economic transactions. The resulting wedges between social and private costs or returns lead to inefficient market outcomes. In some circumstances, they may prevent markets from emerging. Although there is room for market-based corrective solutions, government intervention is often required to ensure that benefits and costs are fully internalized.
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