-Refer to the Diagram Above

question 7

Multiple Choice

-Refer to the diagram above.Generally speaking,most remedies for external costs due to pollution in Canada have not been through taxation but regulations requiring firms to use a specific type of pollution-reduction technology.For the regulation to lead to the socially optimal level of output,one must assume that

• A) firms will simply choose to go out of business and eliminate the externality.
• B) requiring the technology will increase costs such that the private supply,S,shifts to S1.
• C) it is easier to regulate than to tax.
• D) requiring the technology will shift the social supply curve,S1,to S.
• E) the best way to reduce pollution is to force firms to use a particular technology.

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