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How large should a Pigovian tax be to achieve efficiency?
A Pigovian tax is a tax on any market activity that generates negative externalities.
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- If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?Explain why an economy in which airlines charge different passengers' different prices for the same flight will not be efficient?why do externalities make market outcomes inefficient?