Externalities Flashcards
1
Q
Why would a government give permits to firms rather than selling them?
A
make the policy more attractive to producers
2
Q
Give one advantage an output tax has over the cap and trade policy in (a) above.
A
Revenue for the govt which can be used to internalize the externality.
3
Q
Assume how a negative externality of a firm polluting a river making it un-swimmable for locals would be accounted for using Coase Theorem.
A
the factory would pay local swimmers or local swimmers would pay the factory to not pollute, depending on what the property rights are.
4
Q
What are the two conditions required for Coase Theorem to be effective
A
- Established property rights
- Low transaction costs
