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    Pigouvian tax vs. the so-called standards-charge approach

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    Explain the essential difference between a Pigouvian tax and the so-called standards-charge approach to pollution. You will recall that the standards-charge approach sets out to achieve a target (eg. a limit on SO2 emissions) by using a charge (price) on emissions.

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    Pigouvian taxes are levied on sellers or buyers when they buy or sell good associated with negative externalities. In this case, the tax would be levied on the producer to discourage them from polluting. The increased cost of production would cause them to raise prices, meaning less of the good would be sold. The amount of the price increase needs ...

    Solution Summary

    This solution compares the Pigouvian Tax with Standards-Charge Approach.