If a pollution tax in a market with an external cost changes the market so that it produces the efficient level of output,which of the following occurs?
i.The supply curve shifts leftward.
ii.The price increases.
iii.The quantity produced decreases.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

When a pollution tax is imposed in a market with an external cost, it increases the cost of production for the firms which leads to a leftward shift in the supply curve. As a result, the price of the product increases to reflect the higher cost of production, and the quantity produced decreases to the efficient level where the social cost equals the private cost. Therefore, all the options (i), (ii), and (iii) are accurate, making option (E) the best choice.

If a Pollution Tax in a Market with an External