Multiple Choice
Which of the following is NOT an example of a typical resource shared between a buyer and supplier in the context of addressing externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following public policies is best supported by the notion of free enterprise?
A
Government ownership of firms
B
Direct government regulation of output
C
Mandatory technology standards
D
Tradable pollution permits
Verified step by step guidance1
Understand the concept of free enterprise, which emphasizes minimal government intervention, private ownership, and market-based solutions to allocate resources efficiently.
Analyze each policy option in terms of how much government control or market freedom it involves: government ownership implies direct control, direct regulation controls output, and mandatory technology standards impose specific requirements.
Recognize that tradable pollution permits create a market for pollution rights, allowing firms to buy and sell permits, which aligns with free enterprise principles by using market mechanisms rather than direct control.
Compare the policies to see which one relies on market forces rather than government mandates, identifying tradable pollution permits as the policy that best supports free enterprise.
Conclude that among the options, tradable pollution permits are preferred in a free enterprise system because they use market incentives to achieve environmental goals without heavy-handed government intervention.
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