Pure, Per Se and Natural Monopolies
Heather Sims
ECON 220
February 3, 2013

Pure, Per Se and Natural Monopolies
Market activities have some unintended negative effects outside of the market scope called externalities. Power plants produce energy that people of today (need) to live. While producing the energy, air pollution comes into play. Pollution has many side effects for many people. As policy makers we need to find a way to reduce the pollution being emitted into the air. One solution could be a Cap and Trade policy. This would mean the government would sell allowances or permits to the plants. This would allow so many units of pollution to be emitted. If the plant had one hundred permits or allowances, the plant could emit one hundred units of pollution. The government puts a cap on the number of allowances or permits sold to all plants. Depending on the cost of the permit, the plants can decide on how many they should try to get. If the permits are sold at $28 each and the cost to a plant to eliminate pollution is $25, buying the permits would not be feasible to buy. If a plants cost of eliminating pollution was $35, it would be feasible for the plant to try and gain a permit at $28 because this would save the plant money. This can help reduce emissions by allowing plants to release a certain amount and having repercussions to the plant if they release more than paid for. Most plants are not going to want to pay more than they have to considering they are in the business to make money not give it away. Another solution to lower pollution would be the Corrective Tax policy. The government would be able to tax and put a price on the right to pollute (Krugman, 2009). The higher the tax and price the plants would have to pay would lower the pollution each plant produces. For some plants this policy would not matter because the plant may make more than