A pollution tax
A) is a method used to internalize external costs.
B) will not affect the price of the good being produced.
C) does not affect the quantity of a good demanded.
D) is a method used to externalize internal costs.

Question

Quizplus · Accepted Answer

A pollution tax is a method used to internalize external costs. It imposes a tax on polluters for the amount of pollution they generate, which encourages them to reduce emissions and invest in cleaner production methods. By internalizing the costs of pollution, businesses have an incentive to decrease their pollution output because it is no longer a free externality that can be passed on to society. This type of tax changes the incentives for businesses and can lead to a reduction in pollution.

A Pollution Tax