The course textbook lists three types of market failure: public goods, externalities and common resources. Imagine a coal power plant in North Dakota that emits harmful smoke during the power production process; the plant sells power 100 miles from the plant. The smoke affects a nearby residential area within 10 miles of the plant.
Answer the following questions. Please avoid providing one word answers; provide adequate explanations.
1. What kind of market failure would this be?
2. How does this kind of market failure affect the efficiency of the market for power? How does it affect the amount of aluminum produced?
3. Propose at least three solutions to this problem. Be sure to indicate if what you are proposing is a government or private solution and explain how it would solve the problem and restore efficiency.