Final answer:
A tax to internalize a negative production externality, such as a pollution charge, aims to have producers incorporate the social costs of pollution into their production costs, leading to reduced harmful outputs and promotion of environmentally friendly practices.
Step-by-step explanation:
A tax to internalize a negative production externality is designed to correct market outcomes that otherwise would over-produce goods causing harm to society, like pollution. This type of tax, often referred to as a pollution charge or pollution tax, is set to be equivalent to the externality cost. By implementing this, firms are faced with the true cost of their production, including the social damages, which should lead to a reduction in the over-production of these harmful goods and services and a movement towards the social optimum.
Pollution charges create a situation where firms that can reduce their emissions cheaply will do so to avoid the tax, while those with higher abatement costs may opt to pay the tax. This approach provides an economic incentive to reduce pollution and encourages technological innovation that could lower pollution in the long term. However, accurately setting the pollution tax requires detailed knowledge of the pollution's economic impact and the costs of abatement measures.