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Which policy tool uses market signals rather than direct orders to reduce negative externalities?Group of answer choicesCommand-and-control regulationPollution taxLiability rulesBans on consumption

Question

Which policy tool uses market signals rather than direct orders to reduce negative externalities?Group of answer choicesCommand-and-control regulationPollution taxLiability rulesBans on consumption

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Solution

The policy tool that uses market signals rather than direct orders to reduce negative externalities is the Pollution tax. This approach involves imposing taxes on activities that are harmful to the environment, thereby providing economic incentives for businesses and individuals to reduce their environmental impact.

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