Suppose That the Government Could Accurately Measure the Marginal Cost $\frac { 1 } { 2 } ( \Delta Q \Delta P )$

question 16

Multiple Choice

Suppose that the government could accurately measure the marginal cost of an externality such as water pollution. In order to reduce production from a plant that emits water pollution, the government places an optimal emissions fee on the plant. The final amount of production equates demand with the marginal social cost to society. The deadweight loss associated with this fee is

• A) equal to the amount of the tax.
• B) equal to the quantity reduction as a result of the tax.
• C) measured as \(\frac { 1 } { 2 } ( \Delta Q \Delta P )\).
• D) zero.

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