Sometimes the Government Deals with Externalities by Creating Laws to Regulate

Multiple Choice

Sometimes the government deals with externalities by creating laws to regulate behavior, instead of using taxes to correct the market failure. For example, government requires automobile makers to install a catalytic converter to remove toxins from exhaust. This pollution-fighting alternative to a gas tax

A) is illegal for you to remove even though you own it
B) requires less technological development than a gas tax
C) means that automobile owners don't pay for the pollution control
D) makes the cost of the externality easy to determine
E) equates the social cost to the private cost of driving