Question

In the context of the market-based approach to resolving environmental challenges, identify the market failures that can lead to serious environmental harm. (Check all that apply.)

A. The presence of externalities

B. The lack of markets for creating a price for important social goods

C. Incomplete information and asymmetric information

D. Overregulation by government authorities

E. Perfect competition in all markets

F. Lack of property rights enforcement

Answer 1

Market failures that can lead to serious environmental harm include the presence of externalities, incomplete information, and lack of property rights enforcement. Option A, C and F are the correct answer.

Step-by-step explanation:

The market failures that can lead to serious environmental harm in the context of the market-based approach to resolving environmental challenges are:

1. The presence of externalities: This occurs when the actions of producers or consumers impose costs or benefits on third parties who are not involved in the transaction. For example, pollution from a factory can harm the health of nearby residents.
2. Incomplete information and asymmetric information: When buyers or sellers lack information about the true costs or benefits of a product, market outcomes may not be efficient. For instance, if consumers are not aware of the environmental impact of a product, they may not take that into account when making purchasing decisions.
3. Lack of property rights enforcement: If property rights are not well-defined or not enforced, individuals may have no incentive to protect the environment. For example, if there are no laws against illegal logging, deforestation may occur.