Chapter 10 B

Question 0

What options do governments have in terms of environmental policy? (4)
what are we best off doing?

Answer 0

1. internalize the externality
   - make the person who causes the problem pay
2. Set standards and controls
   - give limitations to pollution
3. Set taxes/subsidies
4. Market creation
   - let businesses do 5 tickets of pollution and allow ticket trade between businesses if they want

best off with #4. it’s a market based system bc they can dictate themselves. however, it’s a long run solution

Question 1

Why don’t businesses factor

environmental costs?

Answer 1

bc no market exists (market failure-externalities, third party effects)

also, there are no property rights, and high transaction costs (can’t distribute costs evenly effectively)