The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming that there are no private costs from pollution to the polluter).

Question

Quizplus · Accepted Answer

The optimal Pigouvian tax is designed to correct for negative externalities, such as pollution, by aligning the private cost of the polluter with the social cost. This is achieved by setting the tax equal to the marginal social cost of pollution at the socially optimal quantity of pollution, which ensures that the polluter bears the full cost of their actions on society. Therefore, the statement is true.

The Optimal Pigouvian Tax Is Equal to the Marginal Social