Multiple Choice
Which of the following would be the best example of regulatory capture?
77
views
7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is NOT a public solution to externalities?
A
Imposing taxes or subsidies
B
Establishing tradable permits
C
Direct government regulation
D
Private bargaining between affected parties
Verified step by step guidance1
Step 1: Understand what externalities are — they are costs or benefits caused by a producer that are not financially incurred by that producer, affecting third parties.
Step 2: Recognize that public solutions to externalities involve government intervention to correct market failures, such as imposing taxes or subsidies, establishing tradable permits, and direct government regulation.
Step 3: Identify that private bargaining between affected parties is a private solution, not a public one, as it relies on negotiation without government enforcement.
Step 4: Review each option and classify it as either a public or private solution based on whether the government is involved in implementing it.
Step 5: Conclude that the option 'Private bargaining between affected parties' is NOT a public solution to externalities because it does not involve government action.
Related Videos
Related Practice
