Question

The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause the destruction of the ozone layer that surrounds the earth and which protects humans from ultraviolet radiation. Output of this substance has been restricted by a licensing system where producers have to bid in the open market for licenses to produce them in specified quantities. This is an example of dealing with externalities by

Answer 1

Market mechanism.

Step-by-step explanation:

Pollution can be defined as the physical degradation or contamination of the environment through an emission of harmful, poisonous and toxic chemical substances.

A positive externality arises when the production or consumption of a finished product or service has a significant impact or benefits to a third party that isn't directly involved in the transaction.

On the other hand, a negative externality arises when the production or consumption of a finished product or service has negative impact (cost) on a third party.

In this scenario, this is an example of dealing with externalities by market mechanism because the producers have to bid in the open market for licenses to produce these substances in specified quantities