Bachelor of General Studies (BGS) Degree Practice Exam

What is an example of regulations that help mitigate negative externalities?

1. No smoking rules to combat second-hand smoke

2. Tax incentives for renewable energy

3. Minimum wage laws

4. Subsidies for public transportation

The correct answer is: No smoking rules to combat second-hand smoke

The choice of no smoking rules to combat second-hand smoke is an example of regulations that help mitigate negative externalities because it directly addresses a situation where an individual's action—smoking—can have detrimental effects on others who are not part of that activity. Second-hand smoke poses health risks not only to smokers but also to those around them, creating a negative externality. By implementing no smoking rules in public places, the government seeks to reduce these health risks for non-smokers, promoting public health and welfare. The other options represent different types of interventions. Tax incentives for renewable energy focus on promoting positive behavior rather than directly correcting negative externalities. Minimum wage laws regulate compensation to ensure a living wage but do not specifically target negative externalities associated with individual choices. Similarly, subsidies for public transportation encourage use of public systems but do not directly tackle negative externalities associated with specific harmful behaviors.