| Chapter 7 Outline |
| III. MARKET FAILURE: IS GOVERNMENT ACTION NECESSARY? |
| A. General Comments |
| 1. When externalities are present there will be market failure. Market failure means that the market fails to bring about the efficient outcome. |
| 2. Government has passed numerous regulations in an attempt to correct the market failures associated with pollution. |
| 3. Some economists argue that instead of using regulation, government could rely on Coase's solution and control pollution simply by establishing and enforcing property rights to the natural environment. |
| 4. Became of the bargaining involved, Coase's solution will only work ff the number of affected parties is small. |