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 possible public policies aimed at reducing the amount of carbon dioxide in the air For each policy listed, identify whether it is a command-and-control policy (regulation), tradable permit system, corrective subsidy, or corrective tax. Command- and Tradable Contro Permit Corrective Corrective Policy System Subsidy Tax Public Policy The government agrees to reimburse all factories that purchase new, emissions- reducing technology in order to provide cleaer air. The government limits total carbon-dioxide emissions by all factories to 120,000 tons per year. Each individual factory is given the right to emit 110 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace. The government charges factories $400 for every ton of carbon dioxide they emit. The government orders every factory to adopt a new technology, which reduces carbon- dioxide emissions into the atmosphere. Grade It Now Save & Continue Continue without saving

Explanation / Answer

Public Policy

Policy 1 - Government agrees to reimburse all factories that purchase new, emission reducing technology to provide cleaner air

This is a kind of subsidy that government is provinding private players to promote less carbon emission technology to provide cleaner air to public

So policy 1 is kind of corrective subsidy offer by government

Policy 2 - Government limits total carbon-dioxide emission by all factories to 120,000 tons per year. Each individual factory is given the right to emit 110 tons of carbon dioxide and factories can buy and sell these rights in marketplace

This is a kind of tradable permit system as government puts limit of carbon emission and factories can trade these permissions in market so it is king of tradable permit system

So policy 2 is kind of tradable permit system by government

Policy 3 - Government charges factories $400 for every ton of carbon dioxide they emit

This is a kind of corrective tax that government is charging factories to emit pollution in the environment

So policy 3 is a kind of corrective tax

Policy 4 - Goverment orders factory to adopt new technology, which reduces carbon dioxide emission into atmosphere

This is a kind of command and control policy imposed by goverment to the factories.

So policy 4 is kind of command and control policy

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