The government is considering levying a tax on the pollution generated from two electric power plants (Plant A and Plant B) Plant A is located in a city with a high density of population, and Plant B is located in the rural area with a low density of population. The government should

Question

Quizplus · Accepted Answer

Plant A, located in a city with high density population, is likely to cause higher levels of pollution and thus has a higher economic damage. Therefore, a higher tax per unit of pollution should be levied on Plant A to discourage pollution and incentivize cleaner production methods. Alternatively, a lower tax per unit of pollution can be levied on Plant B, located in a rural area with low density of population, because the economic damage caused by its pollution is lower.

The Government Is Considering Levying a Tax on the Pollution