Government invention is required to solve externality problems if ________.
A) transaction costs associated with private negotiations are low
B) the number of people affected by the externality is small
C) the number of people affected by the externality is large
D) property rights are clearly defined

Question

Quizplus · Accepted Answer

If the number of people affected by the externality is large, it can be difficult or expensive for them to negotiate a private solution to the problem. In this case, government intervention is necessary to internalize the externality and ensure that the costs are borne by those responsible for them. If transaction costs associated with private negotiations are low, property rights are clearly defined, or the number of people affected by the externality is small, then government intervention may not be necessary or efficient.

Government Invention Is Required to Solve Externality Problems If ________