When it comes to pollution, economists believe that the government must:

Question

Quizplus · Accepted Answer

Economists believe in the concept of externalities, which is when the actions of one party impose costs or benefits on another party without compensation. Pollution is an example of a negative externality, as the actions of firms impose costs on society in the form of environmental damage, health problems, etc. Therefore, economists believe that firms should be able to pollute as long as they bear the full cost of their pollution (i.e. internalize the externality). This can be achieved through government intervention, such as implementing a pollution tax or cap-and-trade system, which incentivizes firms to reduce their pollution levels to avoid paying the associated costs. Allowing pollution to exist unabated (choice A) or allowing firms to pollute with positive benefits (choice B) ignores the negative externalities imposed on society. Never allowing pollution to exist (choice D) may not be practical or feasible in certain industries.

When It Comes to Pollution, Economists Believe That the Government