Which externality regulation method includes imposing limits on output?

The regulation of externalities through the imposition of limits on output is effectively achieved with the use of quotas. Quotas directly restrict the quantity of a good or service that can be produced or consumed, thereby controlling the level of externalities generated by that production or consumption. This method is particularly effective in managing negative externalities, such as pollution, as it creates a legal maximum on output levels.

When a quota is in place, producers are obligated to operate within the specified limits, which can lead to reduced negative impacts on third parties and the environment. This regulation method is straightforward and can be enforced through permits or licenses that determine the allowable output.

Taxation and subsidies focus on altering economic incentives rather than directly limiting output. Taxes aim to internalize the external cost by increasing the cost of producing goods that generate negative externalities, while subsidies are designed to encourage activities that produce positive externalities. Price monitoring does not directly restrict output either; it involves observing market prices to ensure fairness and competition but does not inherently limit production levels.

Therefore, the most accurate option among the choices for a method that imposes direct limits on output is quotas.