Question

Imposing taxes that increase as a firm's pollution increases is often recommended by economists as a means to reduce pollution. The reasons for this recommendation is that such taxes would likely_______________

Answer 1

Reduce pollution as firms would choose more efficient method of production.

Step-by-step explanation:

Negative externality is when the benefits of economic activities to third parties is less than the cost. Pollution is an example of an activity that produces negative externality.

Production activities that generates negative externality can be discouraged by imposing tax.

This tax is known as pigouvian tax.

The tax increases the cost of production which discourages production and reduces the externality.

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