Command and Control Solutions vs. Taxes and Subsidies

… a core concept in Economic Analysis and Atlas102

CommandVideo

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Concept description

In looking at solutions ton Externality problems, Alex Tabarrok (reference below, video on right) compares command and control solutions (usually through government regulations) with taxes and subsidies.

He uses the example of the U.S. Department of Energy regulation in 2007 aimed at reducing electricity use (and ultimately pollution production) requiring clothes washers to use 21% less energy. He cites a Consumer Reports study that found that the new washers were more expensive but less effective at washing clothes.

WashingTabarrok notes the problems with a regulatory approach, which dramatically reduce the flexibility to find the most efficient way to achieve the goal:

CommandProblemsBut Tabarrok also notes that there are cases, such as smallpox eradication, where flexibility is not a benefit and a command and control solution is the best approach.

Smallpox

Practice questions

From http://www.mruniversity.com/node/210544, accessed 6 May 2016.

Atlas topic, subject, and course

Externalities (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, Command and Control (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-command-and-control, accessed 6 May 2016.

Page created by: Ian Clark, last modified 6 May 2016.

Image: Alex Tabarrok, minute 0.14 of Command and Control (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-command-and-control, accessed 6 May 2016.