What role can the government play in correcting for externalities?
What will be an ideal response?
The government can create taxes and subsidies to help decision makers internalize the external benefits or costs. This would allow these individuals to take the true cost and true social value into account when making decisions regarding production or purchases.
You might also like to view...
Assume a distant tribe only harvests breadfruit and its entire livelihood depends on it. If the price of breadfruit were to rise suddenly how might it be possible that this tribe would actually consume more breadfruit?
What will be an ideal response?
A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________
A) high inflation is always accompanied by high variability of inflation B) high unemployment causes human misery and lost output C) in a stable economy, there is little or no structural inflation D) all of the above E) none of the above