Under economic down term, more and more firms are going out of business. Gregg Industries, located in California, became one of the firms that closed down in this depression. However, Gregg Industries claimed that depression is not the only reason for it to close down. The main reason for them to close down and move which is onerous regulations and high taxes.
For this case, pollution is the externalities, which caused market failure. California State intended to remove the externalities by taxing and regulating the firms. According to supply and demand framework, when cost increases (more regulation and taxes), supply curve will shift to left. Quantity decreases and price of the goods increase. Supply curve shifts to left means that some of the firms go out of business. Price goes up means that less people can afford to buy the goods. Regulation makes consumers and firms worse off in this situation. Residents are the one who will be benefited from this regulation.
Air quality and quality of life in California may not be improved because firms cross the state boundary and build new factories next to California. Air quality will not be improved because air pollution can move back to California.
http://www.latimes.com/business/la-fi-factory23-2009jun23,0,3441163.story
Ka Wa Chan
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