Under an optimal tax system,polluting producers have the incentive to reduce pollution up to the point at which the cost of the reduction is:

Question

Quizplus · Accepted Answer

Polluting producers would have the incentive to reduce pollution up to the point where the cost of reduction is equal to the tax imposed because at this point, further reduction would be more expensive than paying the tax. If the cost of reduction is less than the tax imposed, then producers would choose to reduce pollution, while if the cost is more than the tax, then producers would choose to pay the tax instead. Therefore, the optimal point is where the cost of reduction is equal to the tax imposed.

Under an Optimal Tax System,polluting Producers Have the Incentive to Reduce