A Pigovian tax sets the price of pollution while tradable pollution permits sets the quantity of pollution.

Question

Quizplus · Accepted Answer

A Pigovian tax is a tax imposed on a particular economic activity for creating negative externalities, such as pollution. By setting a price on pollution, the Pigovian tax incentivizes polluters to reduce their pollution levels. On the other hand, tradable pollution permits create a market for pollution rights, allowing firms to buy and sell permits to pollute up to a certain limit. This sets a limit on the quantity of pollution that can be emitted, rather than setting a price on the pollution itself.

A Pigovian Tax Sets the Price of Pollution While Tradable