Pollution taxes reduce pollution by
A) decreasing the amount of the good sold that causes the pollution.
B) causing firms to produce less of the good that generates the pollution.
C) encouraging firms to modify their production process to reduce emissions.
D) all of the above.

Question

Quizplus · Accepted Answer

Pollution taxes can reduce pollution by all three methods listed in the choices. Firstly, if a good that generates pollution becomes more expensive due to the tax, consumers may buy less of it, causing a decrease in the pollution caused by the good. Secondly, firms may decide to reduce production of the good to avoid paying the tax, leading to a decrease in pollution caused by that firm. Lastly, firms may modify their production process to reduce emissions, incentivized by the tax. Therefore, all three choices are correct, making D the best answer.

Pollution Taxes Reduce Pollution by