An Optimal Tax on Pollution Would Result in Which of the Following

question 424

Multiple Choice

An optimal tax on pollution would result in which of the following?

• A)Producers will choose not to produce any pollution.
• B)Producers will internalize the cost of the pollution.
• C)Producers will maximize production.
• D)The value to consumers at market equilibrium will exceed the social cost of production.

Recognize the significance of internalizing external costs and benefits to achieve social efficiency.

Apply the concepts of externalities to various real-world markets such as tobacco, pollution control technology, and antibiotic usage.

Understand and analyze the tools for internalizing positive and negative technology spillovers.

Interpret graphical representations of markets with externalities to identify equilibrium and socially optimal outcomes.

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Definitions:

Diversified Portfolio

An investment portfolio constructed to spread risk by selecting assets across various classes.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.

Risk-Free Rate

The interest rate that can be earned with certainty, commonly taken to be the rate on short-term Treasury bills.

Security Market Line

A graphical representation that shows the relationship between the expected return of an investment and its risk as measured by beta.