When the government intervenes in markets with externalities,why does it do so
A)to increase production when negative externalities are present
B)to protect the interests of bystanders
C)to make certain all benefits are received by market participants
D)to better coordinate the actions of buyers and sellers

Question

Quizplus · Accepted Answer

The government intervenes in markets with externalities primarily to protect the interests of bystanders. Externalities are costs or benefits that affect those who are not directly involved in the production or consumption of a good or service, known as bystanders. When negative externalities exist, such as pollution, the government may intervene to regulate or tax the production to reduce the harm caused to bystanders. When positive externalities exist, such as education, the government may intervene to provide subsidies or incentives to increase the production of the good or service to benefit bystanders. Nonetheless, the government intervention is not meant to increase production but to correct market failures arising due to externalities to ensure that bystanders are safeguarded.

When the Government Intervenes in Markets with Externalities,why Does It