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Unformatted text preview: 2. Private Solutions to Externalities a. The Types of Private Solutions b. The Coase Theorem c. Why Private Solutions Do Not Always Work Give an example of a private solution to an externality. What is the Coase theorem? Why are private economic participants sometimes unable to solve the problems caused by an externality? 3. Public Policies toward Externalities a. Command-and-Control Policies: Regulation b. Market-Based Policy 1: Corrective Taxes and Subsidies March 4, 2008 c. Market-Based Policy 2: Tradable Pollution Permits d. Objections o the Economic Analysis of Pollution A glue factory and a steel mill emit smoke containing a chemical that is harmful if inhaled in large amounts. Describe three ways the town government might respond to this externality. What are the pros and cons of each solution?...
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