The Diagram Below Illustrates a Negative Externality

question 33

Essay

The diagram below illustrates a negative externality. S is the marginal private cost and S₁ is the marginal social cost. Referencing this diagram, describe how a government can use direct regulation to eliminate the problem caused by the negative externality. What is a potential problem with this approach?

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Definitions:

Federal Partnership Act

A general reference to legislation that governs the formation, operation, and dissolution of partnerships in the United States, although the specific laws can vary by state.

Unlimited Liability

A legal concept where business owners are personally responsible for all of the company's debts and liabilities, without any limit on the amount for which they could be liable.

Management Conflict

Refers to disagreements or disputes among managers or between management and employees in a workplace, often due to differences in opinions, objectives, or approaches.

Less Independence

Referring to a decrease in freedom or autonomy in making decisions or carrying out actions without reliance on others.