Market solutions to externality problems work when:
I. property rights are easily identifiable.
II. transaction costs are relatively low.
III. the market quantity is above the efficient quantity.
A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Market solutions to externality problems require clear property rights to be established, so individuals can be held accountable for the costs or benefits of their actions. Low transaction costs are also necessary to facilitate efficient voluntary trade. Finally, the market quantity must be above the efficient quantity for markets to work effectively in achieving a socially desirable outcome.

Market Solutions to Externality Problems Work When