Answer the questions: 1. What kinds of different tools/policies government uses

Question

Answer the questions: 1. What kinds of different tools/policies government uses to control negative externalities from pollution, and which ones of those policies economists prefer and why? (max. 1 point) 2. Now assume the scenario presented in the article: A firm is producing widgets, and it is shifting $10 of its production costs per widget to society in the form of pollution. The government (representing society) imposes a $10 tax per widget on the firm. Use the supply-demand framework to show: 1. the demand and supply curves before and after tax (private supply curve vs. social supply curve). Also show the new equilibrium price paid by consumers, price received by the firm, and the new equilibrium quantity of widgets. Explain your answer. (max. 1.5 points) 2. consumer and producer surpluses after the tax, tax revenue, and deadweight loss occurring because of the tax. (max. 1 point) 3. What happens to consumer and producer surpluses after the tax has been imposed? (max. 0.5 point)

Explanation / Answer

Question No. 1)

Following policies are followed by government to deal with negative externalities:

Usually, economists prefer pollution tax. pollution tax internalises the negative externality and producers now consider negative externalities in their output decisions. Thus, level of output is reduced when external cost is included in total cost of production.

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