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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Definitions:

Jefferson's Embargo

A law enacted in 1807 by President Thomas Jefferson that prohibited American ships from trading in all foreign ports, intending to protect American interests.

New England

New England is a region in the northeastern United States, comprising six states (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut), known for its colonial history and distinct seasonal weather.

American Shores

A phrase denoting the coasts of the United States, often used in discussions about immigration and exploration.

Chesapeake Affair

A significant diplomatic conflict in 1807 between the United Kingdom and the United States, arising from the British navy's attack on the American ship USS Chesapeake.