A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of
A)a direct regulation of an externality.
B)corrective taxes.
C)a Coase theorem solution to an externality.
D)the misuse of a subsidy.

Question

Quizplus · Accepted Answer

The decision to force the plant to stop production is an example of a direct regulation of an externality. The plant was emitting sulfur dioxide, which is a negative externality that affects the local environment and public health. By stopping production, the government is directly addressing the source of the externality and requiring the plant to internalize the costs of their actions.

A Local Manufacturing Plant That Emitted Sulfur Dioxide Was Forced