The city of Spillsville is worried that its municipal landfill is going to fill

Question

The city of Spillsville is worried that its municipal landfill is going to fill up. As a result, the city's sanitation engineer has proposed three solutions: Solution 1: Require each household to reduce its garbage disposal by 100 pounds per month.  Solution 2: Impose a tax of $.05 per pound of garbage that will overall result in the same decline in garbage disposal as Solution 1. Solution 3: Impose a tax of $.50 per pound of garbage over 500 pounds per month. Which of the three solutions would an economist prefer to have implemented? Explain your thinking.

Explanation / Answer

An economist would prefer the second solution because it is a market incentive program whereas the first solution is a direct regulation program. Economists prefer market solutions because they lead to the most efficient ways to conserve resources (where efficient refers to achieving an outcome with the lowest cost possible in total resource use without consideration as to who pays those costs).

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