Production of coal results in land pollution. The graph shows the market for coa

Question

Production of coal results in land pollution. The graph shows the market for coal. When an effective pollution tax is imposed, the tax revenue collected by the government is S thousand a month The tax helps to cope with external costs because The tax is set equal to Price and cost (dollars per ton) MSC 14 at the efficient quantity. 100 MC A. O B. O C. O D. it forces producers to consider their external costs, the marginal social cost it gives property rights to the polluter; the marginal external cost it gives property rights to the polluter; the marginal social cost it forces producers to consider their external costs; the marginal external cost D MSB Quantity (thousands of tons per month)

Explanation / Answer

Social efficient quantity will be at a point where MSC=MSB

Hence social efficient quantity is 2 thousands of tons

When an effective pollution tax is imposed, the tax revenue of the government

= Tax * Social efficient quantity produced

= (The difference between MSC and MC on the socially efficient quantity)*Social efficient quantity produced

=(100 -70)* 2 thousands of tons

=30* 2000

=$60 thousand a month.

Tax helps to cope with the external cost because it forces producers to consider their external costs.

This is because tax reduces the profit of the firm, therefore they consider the external cost.

This is because the tax is marginal external cost.

Hence option D is the correct answer.

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