Evaluating Policy Efficiency for Externalities

Evaluating Environmental Policy for a Steel Mill

A factory produces textiles using a specific dye that pollutes a nearby river. A different, non-polluting dye is available at a similar cost. To solve the pollution problem in the most economically efficient manner, the government should implement a tax on every yard of textile produced by the factory.

A factory produces textiles using a specific dye that pollutes a nearby river. A different, non-polluting dye is available at a similar cost. To solve the pollution problem in the most economically efficient manner, the government should implement a tax on every yard of textile produced by the factory.

Analyzing Policy Inefficiency for Agricultural Pollution

Analyzing an Inefficient Environmental Policy for a Coal Power Plant

Evaluating an Agricultural Pollution Policy

A community is concerned about air pollution from a local power plant that burns high-sulfur coal. A cleaner, low-sulfur coal is available at a slightly higher price. The city council, aiming to reduce pollution, imposes a strict cap on the total amount of electricity the plant can produce. What is the most likely economic inefficiency resulting from this policy?

Match each scenario describing a negative externality with the economic policy that most efficiently targets the source of the problem.