The basic cause of deadweight losses from the existence of common resources and externalities is
A)a lack of clearly defined and enforceable property rights.
B)the self-interested rationality of human beings.
C)the use of a market system to deal with scarcity.
D)the absence of government intervention.

Question

Quizplus · Accepted Answer

Deadweight losses from common resources and externalities arise due to a lack of clearly defined and enforceable property rights. With common resources, there are no property rights, and individuals overuse or exploit the resource, leading to negative externalities. With externalities, such as pollution, the polluter does not bear the full cost of their actions, resulting in an inefficient allocation of resources. In the absence of clearly defined and enforceable property rights, the market system is incapable of efficiently allocating resources, resulting in deadweight losses.

The Basic Cause of Deadweight Losses from the Existence of Common