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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of per unit of _____ pollution.

a. $10

b. $50

c. $450

d. $500

To determine
Corrective tax for pollution.

Explanation

Option (b)

The auction price would yield the appropriate size of the corrective tax which implies an auction price of $50 per unit, equivalent to corrective tax of $50 per unit of pollution. Thus, option ‘b’ is correct.

Option (a)

The corrective tax of $10 per unit is less than the auction price of $50 per unit...

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