ECON 1000 Study Guide - Quiz Guide: Coase Theorem, Demand Curve, Pigovian Tax
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ECON 1000 Full Course Notes
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Market-based policies provide incentives so that private decision-makers will choose to solve the problem on their own, market-based policy #1: Two companies (firm a and firm b) run coal-burning power plants that each emit 40 tonnes of sulfur dioxide per month. So2 causes acid rain & other health issues: policy goal: reducing so2 emissions, policy options, pigovian tax: regulation: requires each plant to cut emissions by a certain tonnage. Make each plant pay a tax on each tonne of so2 emissions. Set tax at level that achieves goal: market-based policy #1: Pigovian taxes & subsidies: the regulation dictates a level of pollution, the tax would give factory owners an economic incentive to reduce pollution, most economists prefer the tax approach, taxes reduce pollution more efficiently, market-based policy #1: If a cleaner technology becomes available, the tax gives firms an incentive to adopt it: market-based policy #1:
