All of the solutions to externality problems involve:

Question

Quizplus · Accepted Answer

The most effective way to solve externality problems is to incorporate marginal external costs and benefits into the decision making process of buyers and sellers. This can be achieved through policies such as taxes or subsidies that internalize the externalities, or through the establishment of property rights that allow parties to negotiate and reach efficient outcomes. Setting regulations to impose a socially optimal price and quantity in the market may not always be practical or effective, while turning private costs and benefits into external costs and benefits or converting social costs into private costs may not address the root cause of the externality problem.

All of the Solutions to Externality Problems Involve