Question

Pollution is a negative externality and it causes harm to the society worth $8 per unit of coal production. In order to ensure socially efficient production, government should

Answer 1

Impose a simple tax of $8 per unit of production on suppliers of coal.

Step-by-step explanation:

Given that the question asks us to ensure socially efficient production, then according to social efficiency which means Marginal Social Benefit equals Marginal Social Cost.

Therefore, in this case, the Marginal Social Cost is $8 per unit of coal production, and in order to have equal Marginal Social Benefit of $8 as well, the government should "impose a simple tax of $8 per unit of production on suppliers of coal."