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"The end goal is to pollute only while making iPods, not sandwiches."

Actually, the end goal would be to reduce the total amount of pollution.




Why?

Pollution has a cost and production has a benefit. If $BENEFIT - $COST > 0, we want more pollution.

The problem is that since pollution is an external cost, the producer/consumer has no incentive to accurately make this calculation. As long as $BENEFIT > 0, the producer/consumer will pollute, and society will pay $COST.

The point of the Pigouvian tax is to give the producer/consumer an incentive to make this calculation correctly, and to compensate the rest of society for the costs they impose.




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