What Effect Would a Tax Equal to the External Cost

Multiple Choice

What effect would a tax equal to the external cost on firms that emit pollutants have?

A) It would provide firms with very little incentive to become eco-friendly.
B) It would provide firms with little incentive to search for less environmentally damaging production methods.
C) It would provide firms with the incentive to decrease the level of activity creating the pollution.
D) It would provide firms with the incentive to slightly increase the level of activity creating the pollution to cover the costs of the tax.