Taxes can yield the efficient level of pollution if the tax is set equal to the
A) marginal benefit of pollution.
B) marginal external cost of the pollution.
C) marginal social cost of the pollution.
D) equilibrium price of the pollution.

Question

Quizplus · Accepted Answer

Setting the tax equal to the marginal external cost of pollution internalizes the externality, leading firms to reduce pollution to the efficient level where marginal benefit equals marginal social cost.

Taxes Can Yield the Efficient Level of Pollution If the Tax