Externalities require government intervention when
A)violence will result between disputing parties.
B)there are only a few sellers in the market.
C)property rights are not clearly established.
D)the government imposes sales taxes.
E)all of the above.

Question

Quizplus · Accepted Answer

Externalities occur when the actions of one party affect the well-being of others, creating market failures. In the case where property rights are not clearly established, it becomes challenging to assign responsibility for the negative externalities, which can lead to disputes between parties. Hence, in such cases, government intervention is required to establish property rights and ensure that external costs are internalized. The other options (A, B, and D) do not necessarily require government intervention in all cases of externalities. For instance, violence may not always result from externalities, and the presence of a few sellers in the market does not guarantee that externalities will occur. Similarly, the imposition of sales taxes is not always a form of government intervention to address externalities.

Externalities Require Government Intervention When