An advantage of imposing a tax on the producer that generates pollution is that
A)it forces the polluting producer to internalize the external cost of the pollution.
B)the government can keep tabs on exactly what is produced in an industry.
C)it will eliminate pollution.
D)a producer can pass the cost of the pollution to consumers.

Question

Quizplus · Accepted Answer

Imposing a tax on the producer that generates pollution is a form of a Pigovian tax that internalizes the external cost of pollution. The polluting producer has to pay for the damages caused by their pollution, which is a more efficient way to reduce pollution than the government directly regulating the industry. As a result, the producer will have an incentive to reduce their pollution levels to avoid paying the tax, leading to less pollution overall. This can lead to a more efficient allocation of resources, as the polluting producer will take the cost of pollution into account when making production decisions.

An Advantage of Imposing a Tax on the Producer That