A Policy That Directly Targets the Externality

question 118

Multiple Choice

A policy that directly targets the externality:

• A)encourages innovation,which matches the goal to stop production of the externality.
• B)gives firms incentives to find different ways to do things,rather than pay for the right to create the externality.
• C)is a better long-run solution.
• D)All of these statements are true.

---

Definitions:

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary depending on the income or profit level.

Unlevered Cost

The cost of funding a project or investment without any associated debt, reflecting the cost of capital that is equity financed.

Pre-Tax Cost

The price of a good or service before any taxes are applied.

Cost of Equity

The return that shareholders require for investing in a company’s equity.