Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

7. Externalities

Private Solutions to Externalities: The Coase Theorem

Microeconomics

7. Externalities

Private Solutions to Externalities: The Coase Theorem

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Multiple Choice

Which of the following is not a way of dealing with externalities?

Internalization

Raising taxes

Increasing competition

Creating an additional market

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Verified step by step guidance

Understand the concept of externalities: Externalities are costs or benefits that affect third parties who are not involved in the economic transaction. They can be positive or negative.

Identify common methods to address externalities: These include internalization, taxation, and creating additional markets. Internalization involves making the party responsible for the externality bear the cost or benefit. Taxation can discourage negative externalities by increasing the cost of activities that generate them. Creating additional markets can help allocate resources efficiently by allowing trading of rights or permits related to the externality.

Analyze the option of increasing competition: Increasing competition typically relates to market structure and efficiency rather than directly addressing externalities. It focuses on improving market outcomes by reducing monopolistic power, not on correcting external costs or benefits.

Compare the options: Internalization, raising taxes, and creating additional markets are direct methods to manage externalities by aligning private incentives with social costs or benefits. Increasing competition does not directly address externalities.

Conclude which option is not a method for dealing with externalities: Based on the analysis, increasing competition is not a direct method for dealing with externalities, as it does not specifically target the external costs or benefits involved.