Pigovian taxes are designed to do which of the following?

Question

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.