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Figure: The Optimal Quantity of Pollution
-(Figure: The Optimal Quantity of Pollution) The figure The Optimal Quantity of Pollution shows the marginal social cost (MSC) and marginal social benefit (MSB) for firms that pollute the air with sulfur dioxide. Using the figure, the optimal Pigouvian tax per unit of pollution is:
A) $500.
B) $250.
C) $167.
D) $83.

Question

Use the following to answer question:
Figure: The Optimal Quantity of Pollution 
-(Figure: The Optimal Quantity of Pollution) The figure The Optimal Quantity of Pollution shows the marginal social cost (MSC) and marginal social benefit (MSB) for firms that pollute the air with sulfur dioxide. Using the figure, the optimal Pigouvian tax per unit of pollution is:
A) $500. 
B) $250. 
C) $167. 
D) $83.

Quizplus · Accepted Answer

The optimal Pigouvian tax is set at the point where MSC = MSB. In the figure, this occurs at a pollution level of 100 units and a tax of $167 per unit.

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