A leather tannery releases a specific, harmful chemical into a local river as a byproduct of its standard production process. A new, alternative processing technique exists that completely eliminates the release of this specific chemical, but it is slightly more expensive for the tannery to implement. A regulator wants to address the water pollution in the most economically efficient way. Which of the following policies best targets the actual source of the negative externality?

Evaluating Policy Efficiency for Externalities

Evaluating Environmental Policy for a Steel Mill

A factory produces textiles using a specific dye that pollutes a nearby river. A different, non-polluting dye is available at a similar cost. To solve the pollution problem in the most economically efficient manner, the government should implement a tax on every yard of textile produced by the factory.

A factory produces textiles using a specific dye that pollutes a nearby river. A different, non-polluting dye is available at a similar cost. To solve the pollution problem in the most economically efficient manner, the government should implement a tax on every yard of textile produced by the factory.

Analyzing Policy Inefficiency for Agricultural Pollution

Analyzing an Inefficient Environmental Policy for a Coal Power Plant

Evaluating an Agricultural Pollution Policy

A community is concerned about air pollution from a local power plant that burns high-sulfur coal. A cleaner, low-sulfur coal is available at a slightly higher price. The city council, aiming to reduce pollution, imposes a strict cap on the total amount of electricity the plant can produce. What is the most likely economic inefficiency resulting from this policy?

Match each scenario describing a negative externality with the economic policy that most efficiently targets the source of the problem.