Which of the following is a common method used by government to cope with the situation in which production of a good creates an external cost?
A) removing property rights
B) subsidizing production
C) marketable permits
D) lottery
E) vouchers

Question

Quizplus · Accepted Answer

The most common method used by government to cope with the situation in which production of a good creates an external cost is by implementing marketable permits. This approach allows the government to limit the amount of pollution that can be emitted by firms, and creates a market for trading permits, encouraging companies to reduce their emissions in the most cost-effective manner. This incentivizes firms to take the most cost-effective measures to reduce their pollution levels. Removing property rights, subsidizing production, lottery, and vouchers are not effective solutions to this problem.

Which of the Following Is a Common Method Used by Government