The production of a good generates a foul-smelling gas which is released into air by factories producing the good.
-Refer to the scenario above. Which of the following will help in internalizing the cost to society from pollution?
A) A Pigouvian tax
B) A Pigouvian subsidy
C) A price ceiling
D) A price floor

Question

Quizplus · Accepted Answer

A Pigouvian tax is designed to equalize the external cost of pollution with the cost to society, thereby internalizing the externalities. This tax is levied on the polluting activity to encourage producers to reduce pollution levels, aligning private costs with social costs.

The Production of a Good Generates a Foul-Smelling Gas Which