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Taxation Negative Internalises the externality, works through the market Unit tax has to =MEC but difficult to know MEC. Who to tax
externalities: mechanism, raising prices, contraction of demand, is not always clear, Indirect taxes are regressive penalising
Demerit goods: signalling rationing & incentive functions still…

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Bans and High negative Reduces consumption. Simple to implement Avoidance and black markets, Ban eliminates and
Regulations externalities: through legislation, Bans totally eliminate any potential benefits, (Utility), (medicinal uses for
Recreational Externality. cannabis) Enforcement costs, doesn't achieve social
drugs. optimum of MSB=MSC unless MEC is V high and/ or

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Positive An advantageous third party spill over In consumption: disease Subsidies, (medical prescriptions, afforestation scheme, green energy: subsidised wind farms) state
effect for which there is no eradication from vaccinations provision, (state vaccination programmes, MMR jabs for children) Regulation (compulsory
Externalities appropriate compensation through In production: afforestation education) Increasing demand/…




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