Private contracts between parties with mutual interests:
A)can only reduce the wellbeing of society
B)will always lead to market outcomes in which 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 some inefficiencies associated with positive externalities, by creating incentives for the parties to internalize the positive externality and engage in mutually beneficial transactions that would not occur otherwise. This can lead to a more efficient allocation of resources and a higher overall level of wellbeing for society. Negative externalities may still arise, but this is not an inevitable consequence of private contracts between parties with mutual interests.

Private Contracts Between Parties with Mutual Interests