Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. Suppose the government is considering changing the pollution tax from P₃ to P₂. That new policy would
A) increase the marginal benefit to firms of abating, and thus encourage greater abatement.
B) increase the marginal benefit to firms of abating, causing them to generate more pollution.
C) reduce the marginal benefit to firms of abating, causing them to generate more pollution.
D) reduce the marginal benefit to firms of abating, and thus encourage greater abatement.

Question

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. Suppose the government is considering changing the pollution tax from P₃ to P₂. That new policy would
A) increase the marginal benefit to firms of abating, and thus encourage greater abatement. 
B) increase the marginal benefit to firms of abating, causing them to generate more pollution. 
C) reduce the marginal benefit to firms of abating, causing them to generate more pollution. 
D) reduce the marginal benefit to firms of abating, and thus encourage greater abatement.

Quizplus · Accepted Answer

A higher pollution tax increases the marginal cost of pollution, which in turn increases the marginal benefit of abating pollution. This encourages firms to abate more pollution.

Figure 9.7 -A Firm That Generates Pollution Is Illustrated in Figure 9.7