Government solutions to externality problems include:
A) taxing the consumption of goods that cause externalities.
B) subsidies.
C) allowing firms to trade the rights to create pollutants.
D) All of the answers are correct.

Question

Quizplus · Accepted Answer

All of the answers listed are government solutions to externality problems.

A) Taxing the consumption of goods that cause externalities is a way to make consumers bear the full cost of their consumption, including any negative externalities generated by the production of that good.

B) Subsidies can be used to encourage the production or consumption of goods that generate positive externalities, since these benefits may not be fully reflected in the market price of the good.

C) Allowing firms to trade the rights to create pollutants creates a market-based solution to pollution, where the firm that can reduce pollution most cost-effectively will be able to sell their unused pollution permits to other firms that find it more difficult or expensive to reduce their own pollution.

Therefore, all of the answers are correct.

Government Solutions to Externality Problems Include