Suppose a competitive industry generates some sort of pollution while producing its output.In order to internalize the externality,the government may:
A)impose a tax equal to the marginal external cost of pollution.
B)offer a subsidy equal to the marginal external benefit derived from the consumption of the good.
C)impose a quota that reduces output to the point where private marginal costs of production equal marginal revenue.
D)impose a price floor on the good produced by the industry.

Question

Quizplus · Accepted Answer

In order to internalize the externality, the government can impose a tax equal to the marginal external cost of pollution. By doing this, the industry will have to pay for the cost of pollution and will be incentivized to reduce pollution in their production process. This will result in a more efficient level of output where the social cost of production is taken into account. Subsidies and price floors are not effective in internalizing the externality, and a quota is not effective in addressing the cost of pollution.

Suppose a Competitive Industry Generates Some Sort of Pollution While