The types of regulations. Concept introduction: Externality: An externality is the consequence of an economic activity which can have a positive or a negative impact on the third party who is completely unrelated to the activity. The ideal measure to stop negative externality is to impose a tax. The tax should be equal to the marginal harm created by the externality.

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Chapter 17, Problem 3P

To determine

The types of regulations.

Concept introduction:

Externality:

An externality is the consequence of an economic activity which can have a positive or a negative impact on the third party who is completely unrelated to the activity.

The ideal measure to stop negative externality is to impose a tax. The tax should be equal to the marginal harm created by the externality.

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