incurred in the production of output and/or consumers do not account for all benefits obtained (a positive

externality). In the case of pollution, at the market output, social costs of production exceed social benefits to

consumers, and the market produces too much of the product.

We can see a general lesson here. If firms were required to pay the social costs of pollution, they would create

less pollution but produce less of the product and charge a higher price. In the next module, we will explore

how governments require firms to account for the social costs of pollution.

12.2 Command-and-Control Regulation

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Explain command-and-control regulation
• Evaluate the effectiveness of command-and-control regulation

When the United States started passing comprehensive environmental laws in the late 1960s and early 1970s,
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