Environmental Regulation of Production

This lecture delves into the concept of environmental regulation of production, focusing on the market for products with external costs. The discussion covers the impact of external costs on market equilibrium, the need to internalize these costs, and various methods to achieve this, such as limiting production, setting prices, and imposing taxes. The lecture also explores the idea of making polluters pay for the damage they cause, comparing direct compensation to victims with imposing taxes. The instructor explains the rationale behind using taxes as a simpler solution, especially in cases like climate change where multiple parties are involved. Additionally, the lecture examines the concept of subsidies as a way to incentivize producers to reduce production, highlighting the equivalence between taxes and subsidies in terms of market incentives.