What is one example of an external cost that regulation may address?

An external cost refers to a cost associated with an economic activity experienced by unrelated third parties. Regulation often aims to address these externalities to ensure that the actions of one party do not impose undue costs on others.

Controls on emissions of pollutants are a prime example of how regulation can mitigate external costs. Pollution from industrial activities, for instance, can harm air quality, impact public health, and damage ecosystems, all of which affect individuals and communities who are not directly involved in the activity. By implementing regulations that control emissions, governments can compel businesses to internalize these external costs, leading to cleaner environments and better health outcomes for the public.

Other options touch on aspects related to the economy or consumer behavior but do not specifically address the concept of external costs in the same way regulation of emissions does. Profitability of businesses is a measure of internal performance, market price fluctuations may reflect various market dynamics without directly considering external impacts, and consumer purchasing decisions relate more to choice behavior rather than the external costs imposed on society. Thus, the regulation of emissions stands out as a clear instance of addressing an external cost effectively.