List and briefly define the three methods government can use to cope with an external cost, such as pollution

What will be an ideal response?

The three methods are emission charges, cap-and-trade, and taxes. Emission charges set a price per unit of pollution that the firm pays to the government. With a cap-and-trade policy, the government issues marketable permits to firms that allow them to pollute by an amount assigned by the permit. The permits can be bought and sold among firms. Taxes can be imposed on polluting firms. If this tax equals the marginal external cost, efficiency can be attained.