Question

What is the goal of a public policy that aims to remedy a market inefficiency due to an externality?

a) To maximize the profits of private firms.
b) To eliminate all market transactions.
c) To achieve an efficient allocation of resources.
d) To control and regulate all economic activity.

Answer 1

The goal of a public policy that aims to remedy a market inefficiency due to an externality is c) to achieve an efficient allocation of resources.

Step-by-step explanation:

The goal of a public policy that aims to remedy a market inefficiency due to an externality is to achieve an efficient allocation of resources. When there is a negative externality, such as pollution, the private market fails to consider all social costs, resulting in an inefficient output.

Public policy intervention seeks to internalize the externality by either imposing regulations or implementing incentives to align private costs with social costs, thus achieving a more efficient allocation of resources.