Explain how market failures such as the lack of property rights affect extraction of resources by business firms
What will be an ideal response?
Business firms are willing to reduce current extraction if they have the ability to profit from future extraction and sale of the resources they extract. Market failures, however, can lead to excessive present extraction of resources. If property rights for future extraction are uncertain for the firm, then a firm has less incentive to conserve resources for future extraction and will increase extraction of resources today. Weak or uncertain property rights reduce the user cost to zero and give more incentive to extract today.
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a. true b. false
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