Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution.
-Refer to Figure 10-18. The tax depicted on the graph
A)gives polluting firms an incentive to develop cleaner technologies.
B)is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C)has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D)All of the above are correct.

Question

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18. The tax depicted on the graph
A)gives polluting firms an incentive to develop cleaner technologies. 
B)is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C)has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D)All of the above are correct.

Quizplus · Accepted Answer

The tax depicted on the graph gives polluting firms an incentive to develop cleaner technologies. As the price of pollution increases, firms will be motivated to invest in technologies that reduce pollution in order to avoid paying the higher tax. This aligns their private interest (reducing costs by reducing pollution) with the social interest (reducing pollution for the benefit of society as a whole).