Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

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Quizplus · Accepted Answer

This is an example of a Pigovian tax, which is a tax imposed on a market activity with negative externalities, such as pollution. The tax aims to internalize the external cost by increasing the price of the market activity to include the cost of the negative externality. In this case, the tax is equal to the cost of acid rain, which is a negative externality caused by the production of the electric utility.

Assume That Production from an Electric Utility Caused Acid Rain