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The statements refer to methods used with regard to both positive and negative externalities. Identify the statements as either true or false. Each term is used more than once. Forbidding the use of asbestos, a cancer-causing material, in construction through the use of legislation is an example of directly regulating a negative extemality. If a company incurs a tax because it generates pollutiom the tax will force the company to stop polluting. false With respect to pollution, it is easy to determine and provide compensation through liability rules. An e'icient solution to a negative externality such as noise pollution is to avoid it, provided that there is enough incentive to do so. The government can use subsidies or tax breaks to encourage activities with positive externalities. I ' Answer Bank WW Classify the statements as true or false. True False Answer Bank Environmental standards are typically more efficient than emissions taxes. Emissions taxes encourage firms to find innovative ways to remove pollution. An emissions tax is a type of Pigouvian tax. Firms generate the same level of pollution, regardless of any emissions taxes that are imposed. With an emissions tax, firms must pay a fine if they pollute more than the legally specified amount