Question

1. Assume the government wishes to adopt a more environmentally friendly agenda and has thus decide to enter markets where externalities are found. Show using supply and demand analysis the effect on where society maximizes welfare when: (6 points)
   1. A government regulation that taxes the amount of production (and thus pollution) is added to the market.
   2. The government provides an income tax break to people who buy electric cars.
   3. The government subsidizes firms if the develop new “green” products

2. Generate the following 2x2 grids: Don’t forget to label columns/rows in your grids (2 points)
   1. A grid providing an example of each a positive and negative consumption and production externality
   2. A grid identifying the good type and an example of all combinations of rival (and non) and excludable (and non) goods.

Answer 1

a,as govt imposses taxes on unsustainable incidents,people become more consecious to use resources . this way better sustainablity can adapt.

b.this get demand largely increase for electric cars then companies started increase their supply scale.this way pollution that arised by the use of diesel and petrol vehicles can regulated.

c.some subzidies govt imposed to encourage green products: