Microeconomics: Theory and Applications with Calculus, 4e

17.3 Regulating Externalities

Because competitive markets produce excessive negative externalities, government intervention may increase welfare. In 1952, London suffered from a thick “pea souper” fog—pollution so dense that people had trouble finding their way home—that killed an estimated 4,000 to 12,000 people. Those dark days prompted the British government to pass the first Clean Air Act in 1956. The United States passed a Clean Air Act in 1970.

Now virtually the entire world is concerned about pollution. Burning fossil fuels is the primary source of additional carbon dioxide $({\text{CO}}_2),$[&(~rom~CO_{~normal~2}),~norm~&] which is a major contributor to global warming and causes additional damage, such as to marine life. China and the United States ...