A corrective tax equal to the external cost imposed on third parties levied on polluters will:
A)eliminate all pollution.
B)increase the level of pollution.
C)force polluters to internalize the external cost resulting from their actions.
D)usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Question

A corrective tax equal to the external cost imposed on third parties levied on polluters will:
A)​eliminate all pollution.
B)​increase the level of pollution.
C)​force polluters to internalize the external cost resulting from their actions.
D)​usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Quizplus · Accepted Answer

Levying a corrective tax equal to the external cost imposed on third parties will make polluters bear the full cost of pollution that they create, including the costs imposed on others, and force them to internalize these external costs. This internalization of external costs will provide polluters with the incentive to reduce their pollution and adopt cleaner technologies, thereby reducing pollution levels. Consequently, C is the correct answer.

A Corrective Tax Equal to the External Cost Imposed on Third