A pollution tax internalizes the costs of pollution a firm is imposing on others.

Question

Quizplus · Accepted Answer

A pollution tax is designed to make firms pay for the negative externalities their pollution imposes on society, thereby internalizing those costs and providing an incentive for firms to reduce their emissions. This is achieved by imposing a tax on the amount of pollution a firm generates, which increases the cost of production and encourages firms to adopt cleaner technologies or reduce the amount of pollutants they emit.

A Pollution Tax Internalizes the Costs of Pollution a Firm