Question

main idea: there are ways that the government, in particular, can help ease the effects of negative spillovers and externalities. these may involve tax policy and subsidies.

1. detail: in a free market economy, if the government ____ firms with negative spillovers, such as pollution, that adds to the cost of that firms products and makes it less ____.
2. detail: free primary education is a form of ____ spillover, which is why it gets ____ support.
3. detail: both governments and businesses use ____ analysis to compare and ____ projects that have positive spillovers.
4. detail: a project whose positive ____ exceed its ____ is more likely to be enacted that one that is the opposite.
5. detail: most spillovers and externalities can be dealt with via ____ action, such as taxes, ____, and subsidies.

Explanation:

1. In a free - market economy, when the government taxes firms with negative spillovers (like pollution), it increases their costs. Higher costs make the firm's products less competitive in the market.
2. Free primary education has positive spillovers for society (e.g., a more educated workforce). Since it is a positive spillover, it gets government support.
3. Both governments and businesses use cost - benefit analysis. The purpose is to compare and select projects that have positive spillovers. Cost - benefit analysis helps in evaluating the pros (benefits) and cons (costs) of a project.
4. A project is more likely to be enacted if its positive externalities (benefits that spill over to others) exceed its costs. This is a basic principle in evaluating projects, especially those with spillover effects.
5. Most spillovers and externalities can be dealt with via government action. Taxes, regulations (to control negative spillovers like pollution), and subsidies (to encourage positive spillovers like education) are common government tools.

Answer:

1. taxes; competitive
2. positive; government
3. cost - benefit; select
4. externalities; costs
5. government; regulations