The production of an industrial good in a plant emits harmful gases that cause breathing problems.Which of the following will happen if the government imposes a Pigouvian tax on the plant?

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Quizplus · Accepted Answer

A Pigouvian tax is designed to internalize the negative externality caused by the production process. By imposing a tax on the plant, the marginal private cost of production will increase. This will make it more expensive for the plant to produce, and the quantity supplied of the good will decrease. The overall goal of the Pigouvian tax is to reduce emissions and harm to people's health, which will be accomplished by decreasing the production of the industrial good.

The Production of an Industrial Good in a Plant Emits