Asked by Ayesha Tariq on Jul 14, 2024
Verified
There are 25,000 families in a small community that are affected by air pollution from a local factory. The air pollution could be reduced if the company spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if the families in the community contribute the $10,000. Since there are so many families they fail to come to a resolution to which they will all agree. This outcome is an example of the
A) free-rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) collective action problem (that arises when there are too many parties involved) .
Free-Rider Problem
The free-rider problem occurs when individuals consume a good without paying for it or underpay, benefiting from others' contribution, typically seen in the provision of public goods.
Air Pollution
The presence of harmful or excessive quantities of substances including gases, particulates, and biological molecules in the Earth's atmosphere, causing diseases and environmental damage.
Collective Action Problem
A situation where individuals in a group have incentives not to participate in an action that would benefit all members of the group.
- Explore the implications of property rights, legal frameworks (injunctions, liability rules), and collective bargaining on addressing externalities.
- Analyze the implications of externalities on market failure and the role of government in correcting these failures.
Verified Answer
KS
Kayland SebriaJul 18, 2024
Final Answer :
D
Explanation :
This scenario is an example of a collective action problem, which occurs when a large group of individuals fails to achieve a common goal due to the difficulty of coordinating and agreeing on a course of action among a large number of parties.
Learning Objectives
- Explore the implications of property rights, legal frameworks (injunctions, liability rules), and collective bargaining on addressing externalities.
- Analyze the implications of externalities on market failure and the role of government in correcting these failures.