The government has decided to take action to reduce the pollution caused by the

Question

The government has decided to take action to reduce the pollution caused by the chemical industry. The industry is composed of profit-maximizing, perfectly competitive firms. Identify 1 policy that the government could implement to reduce pollution. Explain the effect the policy you identified in part a will have on each of the following for the firms in the chemical industry -marginal cost, output & price. Explain the effect of the policy you identified in part a on the efficiency of the allocation of society's resources.

Explanation / Answer

a) To reduce pollution, the government can nationalize the industry and provide new innovations to reduce pollution. It can also provide for purifying the location or shift it to a better, non inhabiting place. It can provide for less pollution oxidants.

b) All three, output, marginal cost and price would rise. But equilibrium would be at the point where MC=MR=P

c)Government would provide for labor intensive, low capital input. This will also generate employment. Managerial resources would improve and this will improve efficiency as more qualified labour and scientists with new innovations would come in the market. Government would provide less hazardous machines with high output. As a result all product, labor and capital would improve.

by,

Nishant Bhatt

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