Final answer:
The sources of externalities and market failure include difficulties in enforcing property rights and incomplete property rights, leading to inefficient resource allocation. The correct answer is D) Both (A) and (B). Governments may intervene with programs such as marketable permits to address negative externalities.
Step-by-step explanation:
The sources of externalities and market failure can include the difficulty of enforcing property rights, as well as incomplete property rights. These problems can prevent markets from functioning efficiently and lead to outcomes where not all the costs or benefits of a transaction are reflected in market prices. Specifically, the correct answer to the question is D) Both (A) and (B).
Market failure occurs when the market does not allocate resources efficiently, resulting in a discrepancy between social costs and benefits. This includes scenarios where there is a negative externality, meaning a third party not involved in a transaction suffers as a result of that transaction.
As part of the response to market failure and externalities, governments may intervene, for example, by introducing a marketable permit program for pollution, which assists in correcting the imbalance caused by negative externalities.