microeconomics -...

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RUNNING HEAD: PURE, PER SE , AND NATURAL MONOPOLIES 1 There are a number of ways proposed to solve externalities. One is called a Pigouvian Tax- which taxes either the producer or consumer of the product which causes the externality an amount which is equivalent to the amount of damage caused by the product. In this example- let us say that one gallon of gas consumed causes $5 of harm to the environment. The government could therefore impose a tax of $5 dollars for every gallon of gasoline either sold or consumed. This would internalize the externality so that the number of gallons of gas either consumed or sold would be reduced.
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RUNNING HEAD: PURE, PER SE , AND NATURAL MONOPOLIES 2 Another way is to distribute a certain amount of "rights" to pollute the environment. Each firm will be given X number of gallons of pollution allowed per year, and if their amount of pollution exceeds their rights, they will be fined. There is, however, an option for firms to buy and sell some or all of their rights, which means that all emissions caused by the firm is either a "right"
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This note was uploaded on 08/20/2011 for the course ECON 220 taught by Professor Theresiaa.wansi during the Summer '10 term at American InterContinental University.

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microeconomics -...

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