Use the following to answer question:
Figure: MSB and MSC of Pollution
-(Figure: MSB and MSC of Pollution)Use Figure: MSB and MSC of Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.Suppose pollution is unregulated.What level of emissions tax would move the level of pollution to the socially optimal level?
A)$100 per ton
B)$800 per ton
C)$500 per ton
D)$300 per ton

Question

Use the following to answer question:
Figure: MSB and MSC of Pollution 
-(Figure: MSB and MSC of Pollution)Use Figure: MSB and MSC of Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.Suppose pollution is unregulated.What level of emissions tax would move the level of pollution to the socially optimal level?
A)$100 per ton 
B)$800 per ton 
C)$500 per ton 
D)$300 per ton

Quizplus · Accepted Answer

The socially optimal level of pollution is where MSB = MSC, which in this case is at 40 units of pollution. The emissions tax needed to achieve the socially optimal level of pollution is equal to the vertical distance between MSC and MSB at that level of pollution, which is $500 per ton.

Use the Following to Answer Question