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.

Question

Quizplus · Accepted Answer

If only a few people are affected by an externality, it is less likely that the government will intervene to correct the externality. In this case, the private parties affected by the externality have greater incentives and ability to negotiate a solution among themselves. Therefore, a private solution to the inefficiency is more likely to occur.

If Only a Few People Are Affected by an Externality