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To Ensure an Efficient Equilibrium Outcome When External Costs Are

Question 213

Multiple Choice

To ensure an efficient equilibrium outcome when external costs are present in the market, the government could:
I. implement a tax equal to the level of the external cost.
II. create a system of tradable allowances to reduce output to the efficient quantity.
III. institute command and control policies to reduce output to the efficient quantity.


A) I and II only
B) II and III only
C) II only
D) I, II, and III

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