Question

Assume an EPA official observes the following situation in a small town on the banks of a river. The town depends heavily on fish for its food and is heavily dependent on goal for its power. A coal factory on the banks of the river empties pollutants into the river causing health problems among the residents and the fish to develop toxic residues in their livers and other organs. Which of the following solutions should the EPA choose to mitigate this negative externality problem (at least in the short run)?

I. levy taxes on the coal factory's production of pollutants
II. levy taxes on the consumers' consumption of fish
III. create a market for tradeable allowances
IV. subsidize firms that produce clean fish

Answer 1

they should levy taxes on the coal factory´s production of pollutants and create a market for tradeable allowances

Step-by-step explanation: