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Polices for Environmental Externalities

Sometimes market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope. These are called externalities. As a policy maker concerned with correcting the effects of gases and particulates emitted by and local power plant, answer the following questions:

1. What two policies could you use to reduce the total amount of emissions?
2. Why do you think they each would work?
3. What would the benefits of each action be (besides emissions reduction)?
4. What would the costs of each action be?
5. How would you decide what was the best level of emission reduction?

Solution Preview

Sometimes market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope. These are called externalities. As a policy maker concerned with correcting the effects of gases and particulates emitted by and local power plant, answer the following questions:

1. What two policies could you use to reduce the total amount of emissions?

ACTION 1
I could determine the cost to society of the effects of gases and particles and create a formula to fine the company the entire amount of that cost which would be in function to their production of particles (so if they produce 1 million particles they pay a lower amount than if they produced 2 million particles, where 2 million particles might cost more than double than 1 million particles). This way it will internalize the cost to society making the result efficient.

ACTION 2
Determine the costs of emissions and find out the efficient balance between emissions and the environment. Put a quota in the amount of emissions that the power plant can send into the air that is equal to that efficient emission that was determined. If that quota ...

Solution Summary

The solution gives several action policy options to reduce emissions and evaluates them in 769 words.

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