The \"Pigouvian\" Principle states that pollution should be: \"Priced\" at its m

Question

The "Pigouvian" Principle states that pollution should be: "Priced" at its marginal external cost "Priced" at its total external costs Left unpriced Suppose that the government were to impose a tax a $0.75 per gallon on the price of gasoline in the Atlanta metropolitan area. As a result of this tax we would expect: An increase in the number of people riding MARTA A reduction in the number of SUVs and heavy duty trucks on Atlanta roadways A reduction in greenhouse gas emissions and pollution in the Atlanta area All of the above Which of the following policy alternatives is consistent with a goal of minimizing the costs of achieving a given level of emissions reduction? The introduction of a minimum performance standard for all producers of the good The introduction of a subsidy for the use of "green" energy sources to produce the good The introduction of a carbon tax charged on all producers of the good The introduction of a subsidy for firms that elect to reduce emissions

Explanation / Answer

1)The pigouvian principle states that pollution should be taxed at marginal external cost .

2) A high tax would lead to all of the above because people would reduce demand for trucks and cars and the carbon emissions leading to greenhouse effect would also fall .

3)Charging tax on producers is a good idea for minimization of carbon emission .High taxation on production will lead to a fall in externality and pollution .

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