Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

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Quizplus · Accepted Answer

By imposing a tax on the utility, the government is internalizing the externality by making the utility bear the full cost of their production, including the cost of the acid rain. Internalizing the externality leads to a higher overall economic efficiency and a better allocation of resources.

Assume That Production from an Electric Utility Caused Acid Rain