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Home / Questions / Externalities and the use of cost benefit analysis Paragraphs Detail0 Sometimes market activities

Externalities and the use of cost benefit analysis Paragraphs Detail0 Sometimes market activities

Externalities and the use of cost benefit analysis

3-4 Paragraphs

Details: Sometimes market activities (production, buying and
selling) have unintended positive or negative effects outside the market’s
scope This is called an externality Suppose that you are a policy maker
concerned with correcting the effects of gases and particulates emitted by and
local power plant What tools would you use? What would be the benefits of the
action? What would be the costs? How would you decide what was the best level
of emission reduction? Why do you think your approach would be better than
others?

 

Cost and Benefit analysis can be used to justify eliminating
pollution There are two levels of analysis The society must decide on the
optimal level of pollution For example, if a factory were creating $100,000
per year in damages due to pollution it would not make sense to pay $500,000 to
eliminate it It would be best to pay the damages of of $100, 000 and continue
to pollute Second, if pollution should be eliminated, the society must decide
how to eliminate the pollution: regulation (uniform abatement policy), tax on
pollution, or selling permits to pollute To understand the analysis, it is
best to consider marginal benefit and the marginal cost of any new program or
activity Your response should address of the two levels of analysis, Justify
your choice for the method to control and reduce pollution

Mar 16 2020 View more View Less

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