Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

Question

Quizplus · Accepted Answer

Imposing fines on companies that contribute heavily to air and water pollution is a form of government regulation that aims to internalize externalities. By doing this, the government is attempting to have companies bear the cost of their actions, which includes the damage caused by pollution. This is achieved by increasing the private costs of production, making companies reduce their pollution output to decrease the amount of fines they receive. Ultimately, this will lead to a better alignment between marginal private costs and marginal social costs.

Imposing Fines on Companies That Contribute Heavily to Air and Water