A government policy that charges coal producers a fee per ton of coal produced (an "effluent charge"), where the fee is determined by the amount of pollutants discharged into the air or water, will lead to a(n):

Question

Quizplus · Accepted Answer

An effluent charge on coal producers is a form of a negative production externality, where the costs of pollution are not captured in the market price of coal. When coal producers have to pay a fee for each ton of coal produced, which is determined by the amount of pollutants discharged into the environment, it increases their marginal cost of production. As a result, the supply curve for coal shifts to the left, leading to a decrease in the market equilibrium quantity of coal produced (option A is correct).

Moreover, the increase in the marginal cost of production also increases the market equilibrium price of coal (option C is correct) as the quantity demanded decreases along with the decrease in supply. Therefore, the correct answer is D.

A Government Policy That Charges Coal Producers a Fee Per