Principles of Microeconomics
11th Edition
ISBN: 9780133024166
Author: Karl E. Case
Publisher: PEARSON
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Chapter 16, Problem 1P
To determine
Why the imposition of pollution tax of more than the actual value of the damage is unfair.
Expert Solution & Answer
Explanation of Solution
When firms in the industry that pollute are charged with tax rates of higher value than the actual pollution value caused by the firm, the firm would increase the price of its commodity to make up for the additional cost incurred. Thus, the consumers of the firms have to pay an excessive price for the commodities, which have an adverse impact on the consumers. Efficient pollution
When the penalty is equal to the marginal damage cost incurred by the polluting firm, the price paid by the consumers for the product would increase. The increase in the price of the commodity of the polluting firm would take place up to the point where the price equals the marginal
Economics Concept Introduction
Pollution tax: Pollution tax is a measure adopted by the government to control the pollution by the firms through charging a tax rate for each unit of pollution generated by the firm.
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