Does a real externality exist? Or is it just a peculiar externality? If a real external- ity exists, argue which of the government’s tools are best suited to address the issue: taxes/subsidies, cap-and-trade, or something else.
Let’s consider the following examples:
British Petroleum drills for oil in the gulf coast
Carbon emissions from vehicles
You get a college diploma
Buying a car with added safety features that prevent the drivers/passengers’ deaths in the event of an accident
Bringing crying babies on a plane
Free trade with China causes wage cuts among steel workers in the US
Competition harms existing firms by lowering price
Selective abortion benefits women as they become scarce
After a beautiful house burned down and became ugly, the housing prices went down in the neighbourhood