Which of the following is NOT an argument for government intervention in the presence of externalities?

• A. To correct market failures caused by externalities
• B. To ensure efficient allocation of resources
• C. To protect public health and the environment
• D. To increase the profits of private firms

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what externalities are. Externalities occur when a third party is affected by the actions of others, either positively or negatively, and these effects are not reflected in market prices.
2. Step 2: Recognize that government intervention is typically justified to correct market failures caused by externalities, aiming to achieve a more efficient allocation of resources.
3. Step 3: Identify common reasons for government intervention, such as protecting public health and the environment, which are often impacted by externalities.
4. Step 4: Analyze the given options and note that increasing the profits of private firms is not a standard argument for government intervention related to externalities, as government actions usually focus on social welfare rather than private profits.
5. Step 5: Conclude that the option 'To increase the profits of private firms' is NOT an argument for government intervention in the presence of externalities.