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ECO 365 Week 4 DQ 2 What is an externality? Provide at least three examples.

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What effect do government intervention, taxation, and regulations have on economic
behavior? Explain. What are real-world examples of government intervention, taxation,
and regulations? What are the goals of each?
Government intervention, taxation, and regulations all play a role on economic behavior.
Government intervention can have a large impact upon economic behavior. The effect that
government intervention has upon economic behavior generally depends upon the type of
intervention. If it is a country-wide intervention, then the effects will be widespread, however, if
the intervention is only relating to a few individualized markets, the effects will not be a prolific.
One way that the government has intervened is in regards to monopolies. The government has
passed legislation that disallows monopolies from forming in any market, except in a few exempt
situations. Taxes are a neccessary cost for any business as the government needs funding to
operate. However, if the government taxes businesses and individuals too much, then economic
growth will be sluggish at best, and investments will decrease. There are many different types of
taxes, including but not limited to income taxes, property taxes, and sales taxes. Regulations are
generally put into place for a purpose, but the also undermine the free market economy as well.
Regulations will drive businesses costs up and thus drive prices up as well, which can be
detrimental to the economy. One type of government regulation comes from the Sarbanes-Oxley
Act of 2002, which regulates financial reporting of companies.

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