4. Understanding different policy options to correct for negative externalities

Question

4. Understanding different policy options to correct for negative externalities Carbon dioxide emissions have been linked to global warming. The following table lists some possble public policies aimed at reducing the amount of carbon dioxide in the air. For each one, use the dropdown menu to identify whether it is a command and control policy (regulation), a corrective tax, a corrective subsidy, or a tradable permit system. Public Policy Type of Public Policy he government orders every factory to reduce its emissions to no more than 100 tons of carbon dioxide per decade. The government limits total carbon dioxide emissions by all factories to one million tons per decade. Each individual factory is given the right to emit 100 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace. The government charges factories $100 for every ton of carbon dioxide they emit.

Explanation / Answer

The governments orders every factory to reduce its emissions to no more than 100 tons of carbon dioxide per decade. That is government imposes a quantity restriction to regulate the emission. This is command and control policy.

The governments limit total CO2 emission by all factories to one million tons per decade. And allow them to buy sell these rights. That allows them to trade their rights. This is tradable permit system

The government charges factories $100 for every ton of CO2 they emit. This is a corrective tax.

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