Figure 9.6 -A Firm That Generates Pollution Is Illustrated in Figure 9.6

question 14

Multiple Choice

Figure 9.6
-A firm that generates pollution is illustrated in Figure 9.6. Suppose the government is considering changing the pollution tax from P3 to P2. That new policy would

• A)increase the marginal benefit to firms of abating, and thus encourage greater abatement.
• B)increase the marginal benefit to firms of abating, causing them to generate more pollution.
• C)reduce the marginal benefit to firms of abating, causing them to generate more pollution.
• D)reduce the marginal benefit to firms of abating, and thus encourage greater abatement.

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Definitions:

Government Securities

Financial instruments issued by the government to finance its expenditures, including bonds, bills, and notes, which are considered low-risk investments.

Required Reserve Ratio

The fraction of deposits that a bank must hold in reserve and cannot lend out, set by the central bank to control the money supply.

Tax Cut

A reduction in the amount of taxes imposed by a government on individuals or businesses.

Gross Domestic Product

A measure of the economic productivity of a country, quantifying the total value of all goods and services produced over a specific time period.