When multiple firms are emitting, an emissions tax controls emissions in a way that
A) satisfies the equimarginal principle.
B) encourages firms to emit to the point where there marginal abatement cost equals the tax.
C) equalizes marginal abatement costs across all firms.
D) all of the above.

Question

Quizplus · Accepted Answer

An emissions tax controls emissions in a way that satisfies the equimarginal principle by ensuring that every firm reduces emissions until the marginal cost of reducing emissions equals the tax. This encourages firms to emit to the point where their marginal abatement cost equals the tax. As a result, the emissions tax equalizes marginal abatement costs across all firms. Therefore, all of the above choices are correct.

When Multiple Firms Are Emitting, an Emissions Tax Controls Emissions