Economists generally believe that the best way to target a negative externality

Question

Economists generally believe that the best way to target a negative externality is to: tax the externality directly, such as taxing greenhouse gas emissions. O set equivalent limits of production of the externatity, such as setting a quota on greenhouse emissions O prohibit all production of the good that produces the externality. O tax the good that generates the externality, such as taxing the production of automobiles. In practice, governments often try to correct externalities by regulating or taxing the production of the good that generates the externality, such as setting emission standards for cars. A problem with this approach is that it does not reduce pollution because it only taxes cars. it is not fair to all producers and consumers involved. it creates incentives to avoid the tax, and thus external costs may not fall Oproducers will just trade away their production for other items

Explanation / Answer

1. Economists generally believe that the best way to target a negative externality is to :

Tax the externality directly, such as taxing greenhouse gas emissions

Explanation : when directly the negative externality is taxed then the focus is on that negative aspect only and this will add to the producers marginal cost and will cause them to reudce output.

2. In practice, government often try to correct externalitties by regulating or taxing th production of the good that generates the externailty, such as setting emission standards for cars. A problem with this approachis that

it is not fair to all producers and consumers involved

Explanation : taxing the negative externality is good. in case of pollution emission standards for cars are set but it is not at all fair to tax all the producers and consumers involved as it should be found out first who or which cars emit the pollutions more than the standards and then charged.

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