In the context of externalities, why do additional collisions often occur at the scene of a bad crash?

• A. Drivers are distracted by the crash, creating a negative externality that increases the risk of further accidents.
• B. Crash sites provide positive externalities that attract more careful driving.
• C. The government imposes a tax on driving near crash sites, causing more accidents.
• D. Insurance companies encourage drivers to slow down at crash scenes, reducing accidents.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a third party is affected by the actions of others, either positively or negatively, without compensation or payment.
2. Step 2: Identify the type of externality involved in the problem. Here, the crash causes a negative externality because it distracts drivers who are not directly involved, increasing the risk of further accidents.
3. Step 3: Analyze why additional collisions happen at the scene of a bad crash. The distraction caused by the crash diverts drivers' attention from the road, which raises the likelihood of more accidents nearby.
4. Step 4: Evaluate the other options given. Positive externalities would imply benefits, but crashes do not attract more careful driving; taxes or insurance incentives are not typically immediate causes of more accidents at crash sites.
5. Step 5: Conclude that the negative externality of distraction is the key reason for additional collisions, as it increases risk without drivers being compensated or aware of the increased danger.