Multiple Choice
What is the primary purpose of establishing economic sanctions as a public solution to externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is something the federal government is generally forbidden to do when addressing externalities?
A
Regulate pollution through emission standards
B
Impose taxes without legal authority
C
Subsidize research into clean technologies
D
Create tradable permits for carbon emissions
Verified step by step guidance1
Step 1: Understand the concept of externalities, which are costs or benefits that affect third parties not directly involved in a transaction. Governments often intervene to correct these market failures.
Step 2: Recognize common government interventions for externalities, such as regulating pollution through emission standards, subsidizing research, and creating tradable permits. These are typical and legally supported actions.
Step 3: Identify the legal framework that governs government actions. The federal government must have explicit legal authority to impose taxes; without this authority, imposing taxes is forbidden.
Step 4: Analyze each option in the problem: regulating pollution, subsidizing research, and creating tradable permits are generally within government powers, while imposing taxes without legal authority is not allowed.
Step 5: Conclude that the federal government is generally forbidden to impose taxes without legal authority when addressing externalities, as taxation requires explicit legislative approval.
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