In a city experiencing significant air pollution due to industrial emissions, the government is considering implementing a Pigouvian tax to address the negative externalities. Which of the following best describes how a Pigouvian tax would work in this scenario?
1
The tax would be imposed on consumers to reduce their demand for products made by polluting industries
2
The tax would be levied on industries based on the estimated social cost of their emissions, incentivizing them to reduce pollution to an optimal level
3
The tax would be imposed on the entire city population to fund green energy projects
4
The tax would be a fixed amount regardless of the level of pollution produced by each industry
5
Question Not Attempted