Suppose that legally, people own the right to clean air. That is, it is illegal

Question

Suppose that legally, people own the right to clean air. That is, it is illegal for factories to emit toxic gases into the atmosphere. (Or, in other words, the right to clean air has been assigned to citizens rather than factories.) Thus, legally factories would need to either abate pollution or pay people for the damage to the air. Either case would be expected to internalize the cost of pollution and reach an optimal level of output. Which of the following is the most likely reason that private markets may not reach this optimal solution? O Transaction costs may be too high. 0 There is no incentive to have clean air. The assignment of property rights is not efficient. OThe assignment of property rights is not fair.

Explanation / Answer

Answer.) Transaction cost maybe to high.

A transaction cost is any cost involved in making an economic transaction. To negotiate with people to reach optimal price must be paid in order to pollute the air, also comes in the list of transaction cost.

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