1.) what is a negative externality? Using a graph, explain how a tax could correct the externality in an ideal etting. What impediments are there to using corrective taxes in the real world?

2.) Would it be desirable to eliminate all Pollution? Explain.

3.) Would polluters prefer a corrective tax to be placed on the externality they create or would they prefer to have regulations requiring pollution reduction technology that they must use? Explain.

4.) Assume that a monopolist is creating a negative externality. Under what conditions would a corrective tax on the externality be counterproductive? Use a graph to illustrate your answer.

5.) Explain how marketable pollution rights can be used to allocate resources efficently and internalize an externality.

6.) What is the excess benefit that results from the application of a corrective tax?

 

 

 

 
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