Answer to Question 1
C
Answer to Question 2
Transactions costs refer to the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. In the case of pollution, there are often both many polluters and many people suffering from the negative effects of pollution. The transactions costs in dealing with the reduction of pollution would include the time and other costs of negotiating and monitoring an agreement, drawing up a binding contract, and purchasing insurance. When many people are involved, the transactions costs can be higher than the net benefit from reducing the pollution and a private solution may not be feasible.
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