Figure 1511 Coal Burning Utilities Release Sulphur Dioxide and Nitric

Multiple Choice

Figure 15.11 Coal burning utilities release sulphur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain, they overproduce the quantity of electricity.This is illustrated in Figure 15.11.
-Refer to Figure 15.11.S₁ represents the supply curve that reflects the private cost of production, and S₂ represents the supply curve that reflects the social cost of production.One way to internalise the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalise the cost of the externality?

A) P₀
B) P₂ - P₀
C) P₁ - P₀
D) P₂ - P₁