Multiple Choice
Which of the following is an example of a public solution to externalities through a leveling mechanism in the United States?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is a public solution to externalities that can be adapted to planned events such as sporting events?
A
Ignoring the externality
B
Government regulation
C
Market self-correction
D
Private bargaining
Verified step by step guidance1
Step 1: Understand what an externality is — it is a cost or benefit caused by a producer or consumer that is not reflected in market prices and affects third parties.
Step 2: Recognize that public solutions to externalities involve government intervention to correct market failures, especially when private solutions are insufficient.
Step 3: Identify government regulation as a public solution, where the government imposes rules or limits to control the externality, such as setting noise limits or crowd control measures for planned events like sporting events.
Step 4: Contrast this with other options: ignoring the externality means no action is taken; market self-correction relies on the market fixing itself without intervention; private bargaining involves negotiation between affected parties but may not be feasible for large public events.
Step 5: Conclude that government regulation is the appropriate public solution for managing externalities in planned events because it can enforce standards and ensure compliance.
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