Answer :
Final answer:
The correct answer is a) Market failures. These methods are used to correct market failures caused by externalities, where the government may intervene to address the inefficiency by adjusting costs and benefits with taxes, subsidies, and regulations.
Explanation:
The methods listed—private bargaining, markets for externality rights, specific taxes, liability rules and lawsuits, and direct controls—are all strategies used to address market failures, specifically in dealing with externalities. Externalities are costs or benefits that affect third parties who are not directly involved in the economic transaction. When markets do not allocate resources efficiently and result in external costs or benefits that affect third parties, they are said to experience market failure.
Correcting these failures may require government intervention. Governments can enact taxes to discourage negative externalities, provide subsidies for positive externalities, introduce regulations, or establish marketable permit programs for items like pollution. This form of intervention aims to correct the inefficiency by aligning the costs and benefits more closely with those who are actually involved in the market transactions.
