A pollution tax can shift the external cost of pollution from the general public to the polluting firm.

Question

Quizplus · Accepted Answer

A pollution tax imposes a cost directly on the polluting firm for its emissions, thereby internalizing the external costs of pollution that were previously borne by the general public in the form of environmental degradation, health issues, etc. This mechanism makes the firm accountable for its pollution, encouraging it to reduce emissions.

A Pollution Tax Can Shift the External Cost of Pollution