The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming there are no private costs from pollution to the polluter).

Question

Quizplus · Accepted Answer

This statement accurately describes the definition of the optimal Pigouvian tax. The purpose of the tax is to internalize the external cost of pollution and align private incentives with social outcomes, leading to an optimal level of pollution that takes into account both the benefits and costs of pollution. The tax is set equal to the marginal social cost of pollution at the socially optimal quantity of pollution, ensuring that the polluter pays for the damage they cause and that resources are allocated efficiently.

The Optimal Pigouvian Tax Is Equal to the Marginal Social