Question

which of the following is an example of a pigovian tax?
a. payments for licenses to pollute
b. payments by utilities to obtain tradable emission allowances
c. a tax imposed on a utility that internalizes the cost of externalities caused by the utility
d. a payroll tax

Explanation:

A Pigovian tax is designed to internalize the cost of negative externalities. Option C describes a tax that internalizes the cost of externalities caused by a utility, which aligns with the concept of a Pigovian tax. Option A (payments for licenses to pollute) is more about a permit system. Option B (payments for tradable emission allowances) is related to cap - and - trade. Option D (payroll tax) is a different type of tax not related to externalities.

Answer:

C. a tax imposed on a utility that internalizes the cost of externalities caused by the utility