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Optimal tax-government officials

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Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax equal to $500. At the equilibrium with the $500 tax:

  • there will be too much pollution.
  • the marginal social cost of pollution will be less than $500.
  • the marginal social benefit of pollution will be less than $500.
  • the marginal social benefit of pollution will be more than $500.

Reference no: EM131040408

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