If a pollution tax imposed on a firm is greater than its external cost
A) the externality will be fully internalized.
B) the social production cost will increase by the amount of the pollution tax.
C) the pollution tax will be efficient.
D) the firm will be producing too little from a society's point of view.

Question

Quizplus · Accepted Answer

If the pollution tax is greater than the external cost, the firm will reduce production more than is socially optimal, leading to underproduction from society's perspective.

If a Pollution Tax Imposed on a Firm Is Greater