4- There are several instruments that allow the internalization of externalities such as the Standards, tax, and cap and trade. Consider the case of 5 cement production plants and 5 power generation plants producing CO2 and SO4 in a given country.  Please compare the three instruments mentioned above and their efficiency in reducing the 2 pollutants.

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.