A tax on a polluting industry
A) is not desirable because it reduces efficiency.
B) leads to less output in this industry.
C) causes more resources to be used in the polluting industry.
D) shifts the marginal social benefit curve leftward.
E) shifts the marginal social benefit curve rightward.

Question

Quizplus · Accepted Answer

A tax on a polluting industry will increase its production cost and reduce the profit margin of that industry. As a result, the industry will produce less output than before, shifting the supply curve of that industry leftward, leading to a reduction in pollution. Thus, choice B is the correct answer. Option A is incorrect because the tax may reduce pollution and increase efficiency. Option C is also incorrect because the tax will reduce the production of the polluting industry. Option D is incorrect because the tax shifts the marginal social cost curve upward, reducing pollution. Option E is also incorrect because the tax will reduce pollution.

A Tax on a Polluting Industry