Suppose an Industry Emits a Negative Externality Such as Pollution

question 46

Multiple Choice

Suppose an industry emits a negative externality such as pollution and the possible methods to internalize the externality are command-and-control policies, Pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would probably rank them in the following order (from most favoured to least favoured) :

• A) Pigovian taxes, command-and-control policies, tradable pollution permits.
• B) tradable pollution permits, Pigovian taxes, command-and-control policies.
• C) tradable pollution permits, command-and-control policies, Pigovian taxes.
• D) command-and-control policies, tradable pollution permits, Pigovian taxes.
• E) They would all rank equally high because the same result can be obtained from any one of the policies.

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