Use the following to answer questions:
Figure: The Socially Optimal Quantity of Pollution
-(Figure: The Socially Optimal Quantity of Pollution) In the figure The Socially Optimal Quantity of Pollution, the optimal quantity of pollution:
A) could be achieved with a Pigouvian subsidy.
B) is unlikely to be achieved without government intervention.
C) could be achieved with a Pigouvian tax.
D) is unlikely to be achieved without government intervention, but it could be achieved with a Pigouvian tax.

Question

Use the following to answer questions:
Figure: The Socially Optimal Quantity of Pollution 
-(Figure: The Socially Optimal Quantity of Pollution) In the figure The Socially Optimal Quantity of Pollution, the optimal quantity of pollution:
A) could be achieved with a Pigouvian subsidy. 
B) is unlikely to be achieved without government intervention. 
C) could be achieved with a Pigouvian tax. 
D) is unlikely to be achieved without government intervention, but it could be achieved with a Pigouvian tax.

Quizplus · Accepted Answer

A Pigouvian tax is a tax imposed on a negative externality, such as pollution. The tax is set equal to the marginal external cost of the externality, which is the cost that the externality imposes on society. By imposing a tax on pollution, the government can internalize the external cost of pollution, which will lead to a reduction in the quantity of pollution produced.

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