A pollution control agency is considering the following regulatory policies:

(i) Taxing the use of one input that increases pollution. (Other inputs affect pollution too, both increasing and decreasing it.)

(ii) Taxing the final goods that firms produce and sell on the market.

(iii) Taxing pollution.

For each of the following questions, explain why you have answered with the policy that you have, and explain why you have chosen that policy over the other two.

(a) Which of these policies is most likely to reduce pollution?
(b) Which of these policies might actually lead to an increase in pollution?
(c) Which of these policies is most likely to be financially damaging to firms?
(d) Which of these policies is most likely to encourage innovative methods of pollution reduction?