Question

if policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set
a. equal to the marginal private cost of production at the economically efficient level of pollution.
b. equal to the amount of the deadweight loss created in the absence of a pollution tax.
c. equal to the marginal external cost at the economically efficient level of pollution.
d. at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Explanation:

In the case of pollution, which is a negative externality, to achieve the economically - efficient level of pollution, policymakers should set the pollution tax equal to the marginal external cost at the economically efficient level of pollution. This internalizes the externality, making firms account for the full cost of their actions.

Answer:

C. equal to the marginal external cost at the economically efficient level of pollution.