It Is the Custom for Paper Mills Located Alongside the Layzee

question 11

Multiple Choice

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river
find that they must clean up the river's water before it flows through their equipment.
Refer to the above information. Which of the following policies would be most appropriate for
Dealing with this problem?

• A) levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources
• B) levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products
• C) levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river
• D) levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river

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Definitions:

LIFO

Last In, First Out, an inventory valuation method where the most recently produced or acquired items are the first to be expensed.

U.S. Tax Rules

The laws and regulations governing the taxation of individuals and corporations in the United States.

IFRS

Stands for International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) for global use.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.