Suppose the government imposes an emissions tax of $t on each unit of pollution produced by a firm. Under which of the following circumstances would the tax rate be set too high to achieve allocative efficiency?

Question

Quizplus · Accepted Answer

If the tax rate is greater than the marginal external cost of pollution, then the tax would be considered too high because it would lead to a deadweight loss and inefficient allocation of resources. The optimal tax rate should be set at the level of the marginal external cost to achieve allocative efficiency.

Suppose the Government Imposes an Emissions Tax of $T on Each