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Discuss whether regulation is the most effective way of correcting market failure such as those
arising from increasing carbon emission.

Market failure is when the free market fails to provide an efficient allocation of resources. A demerit good
is one which is over consumed and over produced since consumers do…

Page 2

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Nothing will eliminate carbon emissions; they are a bi-product of necessary goods. But pollution permits
would be the most effective way to limit the negative externatility they produce and correct market failure.

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