What would be an optimal tax on pollution
A)one for which producers choose not to produce any pollution
B)one for which producers internalize the cost of the pollution
C)one for which a benevolent social planner is able to maximize production
D)one for which the value to consumers at market equilibrium exceeds the cost of production (including tax)

Question

Quizplus · Accepted Answer

An optimal tax on pollution would be one for which producers internalize the cost of the pollution. This means that the tax would be set at a level that reflects the true cost of the pollution to society, such as the health and environmental impacts. When producers are faced with this tax, they would have an incentive to reduce their pollution levels or find cleaner production methods. By internalizing the cost of pollution, the market would allocate resources in a more efficient way and the costs of pollution would not be imposed on society as a whole.

What Would Be an Optimal Tax on Pollution