A Familiar Example of a Negative Externality Is Traffic Congestion

question 177

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 rights to drive during particular times. 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:

Expensive

Characterized by high price or considerable cost, typically in relation to the value or perceived value of an item or service.

Infrequently Purchased

Items or services bought rarely, often due to high cost, long lifespan, or less frequent need.

Reference Groups

Social groups that individuals compare themselves to for guidance in developing their own attitudes, values, and behaviors.

Wedding Decisions

Choices and plans made regarding the organization, theme, venue, and other aspects of a wedding ceremony and reception.