-A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

Question

Quizplus · Accepted Answer

Imposing a tax equal to the environmental damage caused by emissions internalizes the external cost of pollution, leading to a production level that reflects the true social cost of the product, which is the efficient amount.

-A Firm That Produces Chemical Solvents Creates Some Air Pollution