An optimal tax on pollution would result in which of the following?
A)Producers will choose not to produce any pollution.
B)Producers will internalize the cost of the pollution.
C)Producers will maximize production.
D)The value to consumers at market equilibrium will exceed the social cost of production.

Question

Quizplus · Accepted Answer

An optimal tax on pollution is designed to internalize the cost of pollution by incentivizing producers to reduce their pollution levels. When the tax is set at the optimal level, producers will factor the cost of the pollution into their decision-making process and choose the most efficient production method that minimizes pollution. As a result, they will internalize the cost of the pollution and reduce their emissions to the socially optimal level. Option A is incorrect as it eliminates production altogether, which is not the goal of an optimal tax on pollution. Option C is incorrect as it suggests that producers will prioritize maximizing production at the expense of reducing pollution, while the optimal tax would push them to find an optimal balance between production and pollution. Option D is incorrect as the goal of the optimal tax is to achieve market equilibrium where the value to consumers is equal to the social cost of production, not higher.

An Optimal Tax on Pollution Would Result in Which of the Following