Cement production creates carbon dioxide emissions that impose costs on third parties. A government is considering either an indirect tax of £15 on each tonne of cement or a regulation limiting emissions from production.
Table 1 shows current data and forecasts for the two policies.
| Measure | Value |
|---|---|
| Current annual cement output | 5.0 million tonnes |
| Current average emissions per tonne of cement | 0.70 tonnes |
| Forecast annual output with the tax | 4.2 million tonnes |
| Forecast average emissions per tonne with the tax | 0.70 tonnes |
| Forecast annual output with the regulation | 4.8 million tonnes |
| Forecast average emissions per tonne with the regulation | 0.50 tonnes |
| Annual government cost of enforcing the regulation | £18 million |
Using Table 1, assess which of these two policies the government should introduce to reduce the negative externalities from cement production.
104 exam-style questions on AQA GCSE Economics 2.3 How the government manages the economy, covering 2.3.1a Fiscal policy and income and expenditure, 2.3.1b Fiscal policy and government objectives, 2.3.1c The government budget, 2.3.2a The meaning of monetary policy, 2.3.2b Uses of monetary policy, 2.3.3a Supply-side policies and their trade-offs, 2.3.3b Using supply-side policies, and 2.3.4 Policies to correct positive and negative externalities. Each one has a worked solution and a mark scheme showing where the marks go.