Which of the following is not a public solution to externalities?

• A. Pigovian taxes
• B. Tradable permits
• C. Perfect competition
• D. Subsidies for positive externalities

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what externalities are — they are costs or benefits caused by a producer or consumer that are not reflected in market prices, leading to market failure.
2. Step 2: Recognize that public solutions to externalities are government interventions designed to correct these market failures by aligning private incentives with social costs or benefits.
3. Step 3: Identify common public solutions: Pigovian taxes (taxes on negative externalities), subsidies for positive externalities, and tradable permits (market-based approach to limit negative externalities).
4. Step 4: Understand that perfect competition is a market structure characterized by many buyers and sellers with no single agent able to influence prices, and it is not a government intervention or policy tool to address externalities.
5. Step 5: Conclude that since perfect competition is a market condition rather than a public policy or solution, it is not considered a public solution to externalities.