Private contracts between parties with mutual interests:
A) can only reduce the wellbeing of society
B) will lead to outcomes where public interest is sacrificed for personal gain
C) can solve some inefficiencies associated with positive externalities
D) will always cause negative externalities to arise

Question

Quizplus · Accepted Answer

Private contracts between parties with mutual interests can solve inefficiencies associated with positive externalities. Positive externalities occur when an individual or firm creates value that benefits others without receiving compensation. In this situation, private contracts can incentivize individuals or firms to create these positive externalities by providing a means of compensation. By doing so, private contracts can lead to more efficient outcomes that benefit both parties and society as a whole.

Private Contracts Between Parties with Mutual Interests