A tax on a good whose production causes pollution will
A)raise the equilibrium price and lower the equilibrium quantity.
B)lower the equilibrium price and lower the equilibrium quantity.
C)raise the equilibrium price and raise the equilibrium quantity.
D)lower the equilibrium price and raise the equilibrium quantity.

Question

Quizplus · Accepted Answer

A tax on a good whose production causes pollution is a type of Pigouvian tax, which is used to internalize the external cost of production. This tax will increase the cost of production for the producers, which will shift the supply curve to the left. As a result, the equilibrium price will increase and the equilibrium quantity will decrease.

A Tax on a Good Whose Production Causes Pollution Will