What Effect Would a Tax Equal to the External Cost

question 59

Multiple Choice

What effect would a tax equal to the external cost on firms that emit pollutants have?

• A) It would provide firms with very little incentive to become eco-friendly.
• B) It would provide firms with little incentive to search for less environmentally damaging production methods.
• C) It would provide firms with the incentive to decrease the level of activity creating the pollution.
• D) It would provide firms with the incentive to slightly increase the level of activity creating the pollution to cover the costs of the tax.

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Definitions:

Consistency Principle

The psychological tendency for individuals to seek harmony and consistency among their beliefs, attitudes, and behaviors.

Sleeper Effect

A delayed increase in the persuasive impact of a message, where the message becomes more effective over time after the initial exposure.

Buzz

The word-of-mouth communication that customers generate about a product, service, or company, often seen as a powerful marketing tool.

Herbal Supplier

A business or individual that provides herbs for medicinal, culinary, or other uses.