Which instrument is price-based?

• A. Pigouvian tax (per-unit tax).
• B. Public provision.
• C. Command-and-control standard.
• D. Property rights.

Answer: (A)

Price-based instruments impose a cost on pollution, using price signals to shape behavior. A Pigouvian tax per unit of pollution directly puts a price on emitting, so as the tax rises, firms have a stronger incentive to abate. Each firm decides how much to emit by weighing its marginal abatement cost against the tax, reducing emissions until those two costs align. This contrasts with tools that don’t rely on a price signal: public provision delivers the good or service directly without pricing pollution; command-and-control standards set fixed emission or technology requirements regardless of cost; and property rights establish who can pollute and can enable bargaining but do not by themselves impose a price on pollution—unless paired with tradable permits, which then becomes a price-based approach.