Government Interactions With The Economy
Government Interactions with the Economy
1) Negative Externalities- external costs lead to an over allocation of resources to the specific economic activity. There are 2 possible ways of correcting these overspills:
Taxation- the government can demand an effluent fee, which is a charge to a polluter that gives the right to discharge into the air or water a certain amount of pollution.
Regulation- the government could specify a maximum allowable rate of pollution. This would require the installation of pollution abatement equipment in its rate of output, or some combination of the 2. Finally, the government would need to determine the appropriate level of pollution as well as measuring the pollutants emitted to enforce such a regulation.
2) Positive Externalities- external benefits result in an under allocation of resources to the specific activity. There are 3 possible government corrections:
Government Financing & Production- the government may choose to......
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