A pigovian tax on pollution ?
Correct answer: C. Sets the price of pollution
- A. Sets the quantity of pollution
- B. reduces the incentive for technological innovations to further reduce pollution
- C. Sets the price of pollution
- D. determines the demand for pollution rights.
Explanation
A Pigouvian tax fixes the price of emitting pollution at a charge related to the marginal external cost, while firms choose the resulting pollution quantity. Tradable permits, in contrast, directly set the quantity of allowed emissions.
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