Consider an industry that generates a negative externality, such as pollution. To address this issue, common approaches include regulatory mandates, Pigovian taxes, and tradable pollution permits. From the perspective of economists, how would these methods be ranked in terms of efficiency, ease of enforcement, and incentives for the industry to reduce pollution over time (from most preferred to least preferred)?

Multiple choice question for Externality & Internality. Select an option, then review the explanation below.