Explain 3 policies government can use to change the behavior of a firm that is polluting the water supply ( a negative externalities)
The first policy is the application of tax upon the production activities and the resulting output of the firm. On the basis of each number of output, the tax will be applied. It will resolve the negative externality problem.
The second policy is use of cap and trade policy where the amount of pollution is restricted using the number of permits issued to the firm. It will restrict the amount of pollution released by the firm into the water supply.
The third policy is the implementation of strong regulatory
standards and compliances that will be used in the production
system that will create less pollutants. It will make the firm to
use latest technology and problems of negative externality will be
resolved.
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