What will a corrective tax equal to the external cost imposed on polluters result in?
A) It will increase the level of pollution.
B) It will force polluters to internalize the external cost resulting from their actions.
C) It will eliminate all pollution.
D) It will usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Question

Quizplus · Accepted Answer

A corrective tax equal to the external cost imposed on polluters will force them to internalize the cost of their actions, therefore making it more expensive to continue polluting. This will incentivize polluters to reduce their pollution levels to avoid paying the tax, resulting in a decrease in pollution.

What Will a Corrective Tax Equal to the External Cost