Knowing that the presence of externalities reduces surplus, it implies that:
A. there are mutually beneficial trades waiting to be exploited, so government has an incentive to force those parties to solve the problem themselves.
B. government needs to find them and correct the market.
C. there are mutually beneficial trades waiting to be exploited so private parties have an incentive to solve the externality problem themselves.
D. None of these statements is true.
Answer: C
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