It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. Refer to the above information.Which of the following policies would be most appropriate for dealing with this problem?
A) Levy a tax on the consumers of paper goods and use the tax revenues to conduct research on new energy sources.
B) Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper goods.
C) Levy a tax on the producers of electricity and use the tax revenues to clean up the river.
D) Levy a tax on the producers of paper goods and use the tax revenues to clean up the river.

Question

Quizplus · Accepted Answer

The problem is caused by the paper mills discharging waste products into the river, therefore, the most appropriate policy would be to levy a tax on the producers of paper goods and use the tax revenues to clean up the river. This creates a direct linkage between the polluters and the costs of cleaning up their pollution, which incentivizes them to reduce their pollution levels. Levying a tax on electricity consumers or producers, or using the tax revenues to conduct research on new energy sources or subsidize paper goods consumers, does not address the root cause of the problem and may not be as effective in reducing pollution levels.

It Is the Custom for Paper Mills Located Alongside the Layzee