A government requires ceramics factories beside a river to treat their wastewater so that it meets a legal discharge limit. The rule reduces harm to residents and anglers downstream, but the factories must pay to treat the water and the government must pay for inspections. Which statement gives the best evaluation of the rule?
The rule is worthwhile if the factories' treatment costs are lower than the profits they earn.
The rule is worthwhile if the reduced harm to river users exceeds the treatment and inspection costs.
The rule is worthwhile if the cost of inspections is lower than the factories' treatment costs.
The rule cannot work because, unlike a tax, it does not put a price on the wastewater.
127 exam-style questions on OCR GCSE Economics 3.8 Limitations of markets, covering 3.8.1 Positive and negative externalities, 3.8.2 Policies to correct externalities, 3.8.3 Impact of externality policies, and 3.8.4 Costs and benefits of externality policies. Each one has a worked solution and a mark scheme showing where the marks go.