Asked by Teigan Catlin on Jun 02, 2024
Verified
Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $1,500,but government officials have set the tax at $500.At the equilibrium with the $500 tax:
A) there will be too much pollution.
B) the marginal social cost of pollution will be less than $500.
C) the marginal social benefit of pollution will be less than $500.
D) the marginal social benefit of pollution will be more than $500.
Optimal Tax
A tax designed to generate government revenue with the minimum economic distortion or welfare loss.
Marginal Social Cost
The total cost to society of producing an additional unit of a good or service, including both the cost to the producer and the cost of any negative externalities associated with production.
Marginal Social Benefit
Marginal social benefit is the additional gain to society as a whole from producing one more unit of a good or service.
- Examine the impact of adjusting emissions taxes below or above the ideal level on environmental pollution.
Verified Answer
AR
Arlette RamirezJun 09, 2024
Final Answer :
A
Explanation :
At the equilibrium with the $500 tax, there will be too much pollution because the tax is set lower than the optimal tax of $1,500. This means that polluters will only internalize $500 of the cost of pollution, leading them to underinvest in abatement efforts and resulting in an inefficiently high level of pollution.
Learning Objectives
- Examine the impact of adjusting emissions taxes below or above the ideal level on environmental pollution.