Pure, Per Se, and Natural Monopolies
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Market activities such as production, buying, and selling, sometimes have negative and positive effects on the world. When talking about these effects, one would be speaking of “externalities”. Externalities arise when a person engages in an activity that influence the well-being of a bystander and yet neither pays nor receives any compensation for that effect (Krugman, 2009). An example of this would be second-hand smoke.
When wanting to reduce the total amount of emissions of pollution in our area, as a policy maker, one should choose Command-and-Control Policies and a market-based policy, such as corrective taxes to complete this action. Selecting a policy should be based on the needs of your area.
The Command-and-Control policy would work because the government would be able to control how much pollution would be allowed. Although, zero emission would be ideal, we know that the world can not operate on zero pollution but will be able to operate on a little. If the government is able to control how much emission is allowed by each company, it would be regulated properly. Not only would this policy reduce emission, it would also make certain behaviors forbidden (Krugman, 2009). The environment would also be under the protection of the Environmental Protection Agency.
The corrective tax policy would work because the government would be able to tax and put a price on the right to pollute (Krugman, 2009). The higher the price/tax the less emission the world would endure because companies would not want to spend all of their funds on taxes to pollute the air. Besides reducing pollution, this policy makes the social costs of the negative externality caused by pollution go down. The taxes on gases will go down, therefore, making the economic cost of living more affordable for the average person.
Both of these policies have their disadvantages as well. The Command-and-Control policy regulates the amount of emission, but this does decrease the incentive to develop a more efficient technology to get whatever job done that uses so much pollution (Krugman, 2009). Even though the corrective tax places a price on the right to pollute, that is also the policies disadvantage. Sometimes a price can never be too high for the big firms to purchase. If the price is never too high, a company can purchase the highest tax to receive the highest level of pollution.
The way to decide what the best level of emission reduction is by figuring out which is more cost efficient to the general public, not the big firms who want the pollution to happen. The more the emission remains a negative externality, the less likely it is to work in order to reduce emission. If both policies were put into place, they can both be the best level of emission reduction working together. With the government having control over the maximum level of pollution and the taxes placed on those levels, emission will be reduced tremendously. When