Chapter 74, Problem 5MCQ

To determine

The correct option which makes it more likely that private solutions to externality problems will succeed.

Answer to Problem 5MCQ

From the available options, a correct option is a small number of affected parties.

Explanation of Solution

To provide more successive private solutions to externality problems, a small number of affected parties are the best as they know the problem and the factors better which has a great impact on the outcome. Delays in the bargaining process will not provide an appropriate solution to the problem but it just takes the problem a long way and high transaction costs, and high prices of legal services will add the cost to get a solution that would not be effective for the solution. Loosely defined legal rights would not restrict the parties from taking the most appropriate private decisions as they affect a large number of people.

But the affected parties will be able to get private solutions, therefore, the correct option is d.

Economics Concept Introduction

Introduction: Externality problems refer to the fundamental economic policy problems while firms do not internalize the indirect costs or indirect benefits from any of their economic transactions in the market.