Economics · Market Failure and Externalities
An industrial plant in a river basin is discharging pollutants into the river, causing harm to aquatic life and affecting local farming. The government decides to impose a carbon tax on the company to incentivize cleaner production methods. Which of the following best explains the government's approach?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The government is enforcing a command-and-control regulation by banning pollutants.
- 2The government is offering subsidies to the company to reduce pollution.
- 3The government is providing grants to farmers affected by the pollution.
- 4The government is using market-based incentives to reduce negative externalities.✓
Correct answer
The government is using market-based incentives to reduce negative externalities.
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