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The Diagram Below Illustrates a Negative Externality

Question 33

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The diagram below illustrates a negative externality. S is the marginal private cost and S1 is the marginal social cost. The diagram below illustrates a negative externality. S is the marginal private cost and S<sub>1</sub> is the marginal social cost. Referencing this diagram, describe how a government can use direct regulation to eliminate the problem caused by the negative externality. What is a potential problem with this approach? Referencing this diagram, describe how a government can use direct regulation to eliminate the problem caused by the negative externality. What is a potential problem with this approach?

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The problem caused by the marginal socia...

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