A Familiar Example of a Negative Externality Is Traffic Congestion

question 192

Multiple Choice

A familiar example of a negative externality is traffic congestion.In principle, it should be possible to internalize this externality by permitting drivers to negotiate about rights to drive during particular time periods.The most likely reason that this does not happen is that:

• A)most individuals are unfamiliar with the Coase theorem.
• B)the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
• C)agreements arising from such negotiations could not be enforced, since the Constitution guarantees all individuals freedom of access to all public roads.
• D)lawyers would find a way to prohibit such negotiations unless they were actively involved, and this would make transaction costs prohibitive.

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Changes in Prices

Variations in the cost of goods or services over time, which can be influenced by factors like supply and demand, inflation, or market events.

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