In a competitive market, a pollution tax increases the equilibrium price of the polluting good, decreases the equilibrium quantity, and decreases the volume of waste.

Question

Quizplus · Accepted Answer

A pollution tax is a market-based policy that aims to internalize the external costs of pollution by imposing a fee on the polluting activity. By increasing the cost of production, the tax increases the marginal cost of the polluting good, shifting the supply curve to the left. This results in a higher equilibrium price and a lower equilibrium quantity, reflecting the increased cost of production. Additionally, the tax creates an incentive for producers to reduce their emissions and invest in cleaner technologies, resulting in a decrease in the volume of waste. Therefore, all of the statements in the question are true.

In a Competitive Market, a Pollution Tax Increases the Equilibrium