Question

Explain the externality argument for government regulation of the environment. Describe a policy the government could adopt that would reduce pollution but not require estimation of the optimal pollution tax.

Answer 1

Pollution is a negative externality which incurs a cost to society. In order to lessen pollution, the government can use four main policies.i.e.taxes, subsidies the alternatives, regulations to ban certain pollutants and pollution permits. There are positive externalities as well for example free public schools are beneficial for the society.