Introduction to Government Involvement with Externalities

What you’ll learn to do: analyze the efficacy of government policies to lessen positive and negative externalities

Image of a hand holding an incandescent lightbulb. The filaments in the lightbulb have been altered to look like a green dollar sign.

Figure 1. In the late 1960s and early 1970s the United States started passing comprehensive environmental laws that can be described as Command-and-Control Regulation. The question that persists is: “How effective has this regulation been?

With an understanding of what exactly positive and negative externalities are, we can now examine how the government uses regulation and economic incentives to help markets produce more efficient outcomes.