Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain

Marketing Dec 26, 2020

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of:

(a) the Coase Theorem

(b) a Pigovian subsidy

(d) a Pigovian tax

Expert Solution

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of (d) a Pigovian tax.

A Pigovian tax is used as a deterrent towards an economic activity that may be profitable to individuals/firms, but are otherwise harmful to society at large.

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