Question

When externalities cause markets to be inefficient

(x) government action is sometimes needed to solve the problem.

(y) private solutions can be developed to solve the problem.

(z) there is a way to eliminate the problem of externalities in the market if producers are provided with the appropriate incentives to internalize the externality.

Select one or more:

a. (x), (y) and (z)

b. (x) and (y) only

c. (x) and (z) only

d. (y) and (z) only

e. (z) only

Answer 1

Question-When externalities cause markets to be inefficient

Answer- The correct answer is Option B, that is (x)and (y) only.

As government can use taxes and private solutions like charities will help.