Pigouvian taxes:

A) tax the profits of polluting firms.
B) are designed to reduce external costs.
C) are essentially the same as emissions standards.
D) are tradable emissions permits.

Pigouvian Taxes

Taxes imposed on any market activity that generates negative externalities (costs not reflected in the market price) to correct the market outcome.

External Costs

Costs that are not borne by the producers or users of a product or service, but by society or the environment.

Polluting Firms

Companies that release harmful substances into the environment as a byproduct of their production processes.