Which of the following public policies addressing externalities is most likely to favor businesses?

• A. Tradable permits for pollution control
• B. Strict emission standards with heavy fines
• C. Imposing high Pigovian taxes on negative externalities
• D. Banning all polluting activities

Answer: (A)

Verified step by step guidance

1. Understand the concept of externalities: Externalities occur when a third party is affected by the actions of others, such as pollution affecting the environment and society.
2. Identify the types of public policies addressing negative externalities: These include tradable permits, strict emission standards with fines, Pigovian taxes, and outright bans.
3. Analyze tradable permits: These allow businesses to buy and sell pollution rights, providing flexibility and potential cost savings, which can be favorable to businesses.
4. Consider strict emission standards and heavy fines: These impose rigid limits and penalties, which can increase costs and reduce business flexibility.
5. Evaluate Pigovian taxes and bans: High taxes increase operational costs, and bans eliminate certain activities, both of which can be less favorable to businesses compared to tradable permits.