Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Corrective Tax

A tax designed to incentivize economic activities that are more socially desirable or to correct market imperfections.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity of that good that consumers are willing to purchase, usually sloping downward.

Pollution

The introduction of contaminants into the natural environment that cause adverse change.