A chemical company generates poisonous fumes that create costs for society. The diagram illustrates the free market equilibrium for the firm’s product at P1Q1. The government places a tax of XY on the firm. How would this lead to a better allocation of resources?
- AIt will internalise the external benefit.
- BIt will internalise the external cost.
- CIt will internalise the private benefit.
- DIt will internalise the private cost.