Discussion
Using a car and emitting carbon contributing to global warming is an example of:
Answer: D
Using a car and emitting carbon harms others, who suffer from global warming, and the harm is caused by consumption. So it is a negative consumption externality. A production externality arises when the producer causes it. The answer is option D.
Because the harm is not priced, the car user ignores the cost to others, and a Pigouvian tax on carbon is the usual remedy for such a negative externality.
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