Government can solve externality problems that are too costly for private parties to solve.

Question

Quizplus · Accepted Answer

Externality problems arise when the actions of one individual or entity affect the welfare of others, creating costs or benefits that are not reflected in the market price. When the costs of solving an externality problem are too high for private parties to undertake, government intervention may be necessary to address the issue and promote efficient outcomes. For example, pollution is an externality that can cause harm to individuals and the environment, but it may be too expensive for private firms to reduce their pollution emissions on their own. In such cases, the government can use regulations, taxes, or subsidies to incentivize firms to reduce pollution and reduce the external costs imposed on society.

Government Can Solve Externality Problems That Are Too Costly for Private