Question

Externalities exist because: owners of private property have an incentive to maintain their property. owners of...

Externalities exist because: owners of private property have an incentive to maintain their property. owners of private property have little incentive to protect their property. owners of private property are not able to trade with others. property rights are not clearly defined. there is too much private ownership of property.

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Answer #1

Externalities refers to the unintended impact on the third parties because of the action taken by an individual.

This unintended impact can be positive or negative.

So, externalities can be positive or negative.

However, if the property rights are clearly defined and enforced and markets are operating in efficient manner then, in that case, there would be no externalities.

Externalities exist because property rights are not clearly defined or they are not enforced properly or there is market failure.

Hence, the correct answer is the option (4) [Property rights are not clearly defined].

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