Question

Pigovian taxes are designed to do which of the following?

Reduce the socially optimal level of production

Punish firms for polluting

Deregulate pollution control

Reduce pollution to a level that is socially optimal

Answer 1

Pigovian taxes are designed to **reduce pollution to a level that is socially optimal**. They are intended to internalize the external costs associated with negative externalities (such as pollution) by encouraging firms to reduce their harmful activities, thereby aligning private costs with social costs.