Government often finds it difficult to cope with externalities because

Question

Quizplus · Accepted Answer

Externalities are costs or benefits that spill over individuals or firms who are not directly involved in a market transaction. As a result, it is difficult to assess the true cost or benefit of externalities in monetary terms, as they are not reflected in market prices. This makes it hard for the government to regulate and intervene, as they are unsure of the optimal level of intervention needed to address the externality. On the other hand, taxes and subsidies may not always be effective, as their impact on the market may not be sufficient to account for the full cost or benefit of externalities.

Government Often Finds It Difficult to Cope with Externalities Because