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In: Economics

what role does the us government play in combating externalities?

what role does the us government play in combating externalities?

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Expert Solution

The US government manages the externality and keeps it balanced preventing a loss in the social benefit or increasing it.

In a market where the private cost is less than the social cost, the firm will be generating a negative externality here, the government will put a tax or penalty to increase the private cost and take away that exernality.

If the market is having a positive externality i.e. the private cost is less than the social cost, the government will step in and put a subsidy on that action so that the benefit in the market can be increased.

Rahul Sunny answered 2 years ago
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