An appropriate government policy toward negative externalities is to

Question

Quizplus · Accepted Answer

Imposing a tax or fine on the activity that creates negative externality is the most appropriate government policy. This creates a cost for the individuals or firms engaging in the activity, thereby discouraging them from doing so. It also provides an incentive for them to find more efficient and less detrimental ways of engaging in the activity. Subsidizing the activity or paying money to the party that creates the negative externality would only encourage the behavior, worsening the problem. Imposing a tax on recipients of the negative externality would not address the root cause of the problem and may be difficult to enforce.

An Appropriate Government Policy Toward Negative Externalities Is to