Asked by Kiana Despabiladero on Jun 27, 2024
Verified
(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 ton of pollution can move this market to the socially optimal quantity of pollution.
A) $5
B) $15
C) $25
D) $45
Optimal Pigouvian Tax
A type of tax designed to correct the negative externalities of a market activity, set at a level that equates the marginal social cost of the externality with the marginal private cost.
Socially Optimal
A condition where resources are allocated in a way that benefits society as a whole, maximizing overall welfare.
Pollution
The introduction of contaminants into the natural environment that cause adverse change, affecting air, water, and land.
- Acquire knowledge on the purpose and influence of Pigouvian taxes and subsidies in rectifying external costs and benefits.
Verified Answer
ZK
Zybrea KnightJul 03, 2024
Final Answer :
B
Explanation :
The optimal Pigouvian tax is the difference between the private cost and the social cost of production; in this case, it is the vertical distance between the supply curve and the social cost curve. In the graph, this is $15 per ton of pollution, which can move the market to the socially optimal quantity of pollution.
Learning Objectives
- Acquire knowledge on the purpose and influence of Pigouvian taxes and subsidies in rectifying external costs and benefits.