Suppose that a negative externality creates $1 billion worth of costs to third parties. The government attacks the problem with regulations that cut the cost of the externality to $500 million but cost business and consumers $1.5 billion. This situation illustrates the idea that:
A. correcting market failure can result in government failure.
B. getting rid of externalities requires a great deal of necessary sacrifice for all of us.
C. externalities can never be corrected.
D. regulations are an effective way to curb externalities.
Answer: A
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