Suppose fertiliser use on pastoral land causes water quality in surrounding areas to fall.If a tax on fertiliser was set at the optimal level:

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The optimal level of tax on fertiliser would ensure that farmers fully internalise the pollution costs of using fertiliser. This means that the cost of using fertiliser would increase to reflect the negative impact it has on water quality. When the cost is internalised, farmers will be incentivised to reduce their use of fertiliser to mitigate the negative impact on water quality. Therefore, the tax on fertiliser would not eliminate the use of fertiliser, but rather regulate its use to reduce pollution.

Suppose Fertiliser Use on Pastoral Land Causes Water Quality in Surrounding