Coal fired electricity generation is associated with social costs. Using coal-fired electricity generation, as an example:

1. Explain the social cost concept, and

il. Describe two policy actions that could be implemented by the government to address the social costs of coal-fired electricity generation.

b. In an ellort to curb negative externality from the use of private cars for commuting in the city and cigarette smoking the govemment may introduce an excise lax on fuel and cigarettes purchases. Use the concept of price elasticity of demand, to explain why the government may be able to collect relatively more revenue from one of these two options.