Question

Slide 20: You run a meat production factory. In the course of your production of sausage there is a noticeable smell that lingers in the surrounding neighborhood. 1. What is this an example of? What are possible ways the government can regulate your production? 2. In a graph show the price and output if your business in unregulated then show the price and output after the government imposes a regulation. (1 graph)

Answer 1

1. This is an example of negative externality. The possible ways government can regulate production is by either imposing production taxes or by putting production controls or by asking the factory owners to pay to the residents to compensate for the harm imposed or by making the factory owners install air purifiers

2. The required graph is below:

Q1 represents unregulated free market production

Q2 represents regulated and efficient market production