The purpose of an effluent fee imposed on a firm is
A) to increase output of its product by increasing the resources allocated to production.
B) to increase output of its product by reducing the resources allocated to production.
C) to reduce output by increasing production costs thereby reducing resources used.
D) none of the above

Question

Quizplus · Accepted Answer

The purpose of an effluent fee is to deter firms from polluting the environment by imposing a penalty for the release of effluent into the environment. This penalty increases the production cost of the firm, which reduces its profitability and may cause it to reduce output in order to maintain its profitability. Therefore, the effluent fee reduces the resources used by the firm and, consequently, it reduces the level of output.

The Purpose of an Effluent Fee Imposed on a Firm