A pollution tax lowers the price of the good or service produced by the polluting firm in a competitive market.

Question

Quizplus · Accepted Answer

A pollution tax adds a cost to the production process for the polluting firm, which would increase the price of the good or service produced. The purpose of the tax is to incentivize the firm to reduce its pollution levels by internalizing the external costs imposed on society. However, the firm may still pass some or all of the tax onto the consumers by raising prices, depending on the level of competition in the market. Overall, a pollution tax does not necessarily lower the price of the good or service in a competitive market.

A Pollution Tax Lowers the Price of the Good or Service