Figure 16.1A firm that generates pollution is illustrated in Figure 16.1. 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.


Answer: C

Economics

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