If government knows the private and social benefit and cost curves associated with reducing pollution,which type of instrument for intervention should the government choose?

Question

Quizplus · Accepted Answer

With knowledge of private and social benefit and cost curves, the government can use either price or quantity interventions to achieve the efficient level of pollution reduction. Price interventions, such as a tax on pollution or a cap-and-trade system, work by increasing the cost of pollution for firms, which in turn incentivizes them to reduce their pollution output to the socially optimal level. Quantity interventions, such as regulations or permits, place a limit on the amount of pollution that can be emitted, effectively reducing pollution to the socially optimal level. Either of these interventions can be effective, but the choice between them may depend on practical considerations and political feasibility.

If Government Knows the Private and Social Benefit and Cost