Question

If only a few people are affected by an externality, then it is likely that

a. the government will play a role in collective action.

b. command-and-control regulation will provide the most efficient solution to the externality.

c. a private solution to the inefficiency will occur.

d. a private solution will be very difficult to negotiate.

B.

An externality is

a. the costs that parties incur in the process of agreeing and following through on a bargain.

b. the uncompensated impact of one person's actions on the well-being of a bystander.

c. the proposition that private parties can bargain without cost over the allocation of resources.

d. a market equilibrium tax.

Answer 1

a) If only a few people can benefit from the externality then the government will play a role in the market. The answer is "A".

b) "B"

Externality is the uncompensated impact of one person's actions on the well-being of a bystander