If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Question

Quizplus · Accepted Answer

A fine of $4,000 for each unit of air-pollution released by a fertilizer plant is a form of a corrective tax. Corrective taxes are taxes or charges levied on activities that have negative externalities, such as the pollution caused by a fertilizer plant. The purpose of a corrective tax is to internalize the external cost of the activity, so that the price of the good reflects its true social cost. This approach is preferred over direct regulation because it provides firms with an incentive to find the most cost-effective way to reduce pollution.

If the Government Were to Impose a Fine of $4,000