A solution to market failure in the particular application of environmental policy
A) can be the establishment of a new market where one had not existed before.
B) can never be market-based, as market failure implies that markets damage the environment.
C) can never involve the government because the government initially created the market failure.
D) is impossible because firms and consumers follow their self-interest.

Question

Quizplus · Accepted Answer

One solution to market failure in environmental policy could be to establish a new market where one had not existed before. For example, the creation of a market for carbon credits provides an economic incentive for firms to reduce their greenhouse gas emissions. This can lead to a reduction in the negative externalities associated with greenhouse gas emissions without government intervention or regulation. It is important to note that this solution does not guarantee success, but can provide an effective way to incentivize environmentally-friendly behavior.

A Solution to Market Failure in the Particular Application of Environmental