A tax on virgin materials charged to all manufacturing firms would

Question

Quizplus · Accepted Answer

A tax on virgin materials would increase the cost of using raw materials and encourage firms to use recycled materials instead. The equimarginal principle states that resources should be allocated in a way that the marginal benefit equals the marginal cost. So, firms would begin to allocate resources towards recycling until the marginal benefit of recycling equals the marginal cost of using virgin materials. This would lead to an increase in recycling in a way that satisfies the equimarginal principle.

A Tax on Virgin Materials Charged to All Manufacturing Firms