If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered
A) a subsidy.
B) a regulation.
C) a corrective tax.
D) an application of the Coase theorem.

Question

Quizplus · Accepted Answer

The policy of imposing a fine for each unit of air-pollution released by a steel mill is a form of corrective tax. It is designed to internalize the external costs of pollution by making the polluter pay for the harmful effects of their actions. This encourages the steel mill to reduce their pollution levels and incentivizes them to invest in cleaner production processes or technologies. By contrast, a subsidy would involve providing financial assistance to the steel mill to encourage them to continue operating, while a regulation would involve setting specific limits on the amount of pollution the steel mill can release. The Coase theorem is relevant in situations where private parties can negotiate and bargain to reach an efficient outcome, but does not apply in this case where there is a clear externality that requires government intervention.

If the Government Were to Impose a Fine of $1,000