A per unit tax on pollution:
A) results in deadweight loss.
B) raises private benefits.
C) lowers social benefits.
D) lowers private costs.

Question

Quizplus · Accepted Answer

A per unit tax on pollution creates deadweight loss because it increases the cost of production for the polluting firm, which can lead to a reduction in their output and cause inefficiency in the market. While it can lower pollution levels and have positive externalities, the tax results in a loss of social welfare due to the deadweight loss. It does not raise private benefits, as the cost to the firm of polluting was already included in their private costs.

A Per Unit Tax on Pollution