What is a way the government can correct for negative externalities?by taxing consumers by forcing producers to follow direct controls by subsidizing producers by subsidizing consumers

Asked on by brooke89

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Of the choices that you have given us here, the best is the second one.  One way that governments can correct for negative externalities is to regulate companies, requiring them to follow direct controls.

One example of this is the way the US government regulates auto makers.  The pollution caused by automobiles is a major source of negative externalities.  Therefore, the government attempts to reduce levels of pollution.  One way that it does this is by setting targets for gas mileage that manufacturers must achieve.  This direct control attempts to correct for the negative externalities that go along with auto production.

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