Which of the following is a public solution to externalities that can be adapted to planned events such as sporting events?

• A. Ignoring the externality
• B. Government regulation
• C. Market self-correction
• D. Private bargaining

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what an externality is — it is a cost or benefit caused by a producer or consumer that is not reflected in market prices and affects third parties.
2. Step 2: Recognize that public solutions to externalities involve government intervention to correct market failures, especially when private solutions are insufficient.
3. Step 3: Identify government regulation as a public solution, where the government imposes rules or limits to control the externality, such as setting noise limits or crowd control measures for planned events like sporting events.
4. Step 4: Contrast this with other options: ignoring the externality means no action is taken; market self-correction relies on the market fixing itself without intervention; private bargaining involves negotiation between affected parties but may not be feasible for large public events.
5. Step 5: Conclude that government regulation is the appropriate public solution for managing externalities in planned events because it can enforce standards and ensure compliance.