Chapter 74, Problem 3MCQ

To determine

The dealing of inefficiencies created by externalities.

Answer to Problem 3MCQ

From the available options, the correct option is government actions only.

Explanation of Solution

Private actions are personal actions that do not impact others in the society or externalities and market outcomes involve producer and consumers that does not cover other externalities.

But only the actions of government are related to the inefficiencies which are created by the externalities because the government has the power to restrict externalities, such as it can impose taxes or make policies that limit the inefficiencies of externalities.

Therefore, the correct option is a (government action only).

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.