An optimal corrective tax levied on polluters will:
A) be equal to the marginal cost of their actions imposed on third parties.
B) not generate enough revenue to pay for the cost of the damage resulting from pollution that occurs at the efficient output of the good.
C) decrease pollution to zero.
D) increase the supply of polluting goods.

Question

Quizplus · Accepted Answer

An optimal corrective tax, also known as a Pigouvian tax, is set equal to the marginal external cost of pollution, which is the cost imposed on third parties. This aligns private costs with social costs, leading to an efficient market outcome.

An Optimal Corrective Tax Levied on Polluters Will