The government identifies a situation where production of a good is generating a negative externality.A reasonable option for the government to consider is to:

Question

Quizplus · Accepted Answer

Imposing a tax on the sale of the good will increase the cost for the producer and decrease the quantity demanded, leading to a reduction in the negative externality produced. This can also generate revenue for the government, which they can use to address the negative externality, such as investing in cleaner technology or promoting alternative goods that do not generate negative externalities. Passing a law preventing production or consumption of the good may not be practical and could lead to unintended consequences. Subsidizing the cost of production may lead to an increase in production and consumption, aggravating the negative externality. Ignoring the problem will lead to further negative externalities and harm to society in the long run.

The Government Identifies a Situation Where Production of a Good