Use the following to answer questions :
Figure: Efficiency and Pollution
-(Figure: Efficiency and Pollution)Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.An optimal Pigouvian tax of _____ per tonne of pollution can move this market to the socially optimal quantity of pollution.
A) $5
B) $15
C) $25
D) $45

Question

Use the following to answer questions :
Figure: Efficiency and Pollution 
-(Figure: Efficiency and Pollution)Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.An optimal Pigouvian tax of _____ per tonne of pollution can move this market to the socially optimal quantity of pollution.
A) $5 
B) $15 
C) $25 
D) $45

Quizplus · Accepted Answer

The socially optimal quantity of pollution is where the marginal cost of reducing pollution is equal to the marginal benefit of reducing pollution. In this case, it occurs at a quantity of 10 tonnes of pollution, where the MC curve intersects the MB curve. At this point, the market outcome is at P* and Q*. From this point, the optimal Pigouvian tax can be found by measuring the vertical distance between P* and the social cost curve (SCC) when Q* is produced. This distance is equal to $15 per tonne of pollution. Therefore, the answer is B.

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