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:

Fingertips

The extreme ends or tips of the fingers, sensitive to touch and important for fine motor skills.

Laceration

A deep cut or tear in the skin or flesh, often requiring medical treatment to prevent infection or further injury.

Body Tissue

Groups of cells that perform a similar function in the body, such as muscles, nerves, and epithelium.