Shaquita Case

market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope. These are called externalities. As a policy maker concerned with correcting the effects of gases and particulates emitted by and local power plant, answer the following questions:

1. What two policies could you use to reduce the total amount of emissions?

Two of the most common methods of controlling and reducing emissions are incentives and penalties. These incentives and penalties can affect everyone from the general public to large, multinational companies.

2. Why do you think they each would work?

Specifically talking, an example of such incentive could be to reward those who use more green methods in their every day life or for their company as a whole. For example, if a company uses solar power to power their offices they could be rewarded with tax breaks or a point gaining system. Such systems are used far less frequently than penalty systems but could prove more popular and encourage people to make a change.

Penalty systems are currently used quite frequently in order to control many factors, including emissions. One of the main penalty methods is pigouvian tax. This basically taxes the consumer or producer involved in negative externalities. An example of this would be in the case of petrol. For example, if it was found that a gallon of fuel caused £5 of damage to the environment, the government could impose a tax of £5 per gallon to be charged either to the producer or consumer. This works in two ways. Firstly, it would hopefully deter people from over usage or waste as they are being charged more, and secondly, the money made from tax could be used for other emission reducing projects.

3. What would the benefits of each action be (besides emissions reduction)?