\"The effect of an excise tax on the products of pollution-producing industries

Question

"The effect of an excise tax on the products of pollution-producing industries will be a cutback in production. If the tax was levied directly on the amount of pollution generated, however the long-run cutbacks in production would be much smaller." This statement is most likely to be: 27. false, provided the amount of the taxes on products and pollution is equal. true, because firms would have a greater incentive to adopt new technology that causes less pollution. A. B. C. false, because most firms would rather pay the tax than cut back production. D. true, because taxes levied on pollution affect the demand curve; taxes on products affect the supply curve. If a firm faces a demand curve that slopes downward to the right, we can reasonably expect that the firm: 28. A. must lower prices if it hopes to increase its profits. B. will have no effect on the price of the product it sells C. will find that its marginal revenue is less than the price of the product it sells D. will find that its marginal revenue is greater than the price of the product it sells.

Explanation / Answer

Question number 27 the correct choice is option B. When taxes are imposed directly on the amount of pollution generated then there is an incentive on the part of firm to adopt Technologies that reduce pollution and hence they can save cost.

Question number 28.

Option A is correct and this is true for a Monopoly or a firm working in imperfect market. Though it is true that firm has a market power it has to reduce its price on all the goods produced so that they can sell more and earn more profit.

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