Explanation Option (a): When the government levies a tax on a good equal to the external cost associated with the good’s production, it increases the price paid by consumers and makes the market outcome more efficient. That is, the imposition of tax on the external cost created by a commodity will lead to an increase in the price of that commodity. When the government imposes tax on goods equal to the external cost, it leads to the market outcome becoming more efficient. Thus, option “a” is correct. Option (b): When the government imposes tax on goods equal to the external cost, it leads to the market outcome becoming more efficient...

Tax and externality.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN: 9781337091992

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Question

Chapter 10, Problem 3CQQ

To determine

Tax and externality.

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Similar questions

Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.
Education provides both private benefits to those who receive it and broader social benefits for the economy as a whole. Think about the types of policies a government can follow to address the issue of positive spillovers in technology and then suggest a parallel set of policies that governments could follow for addressing positive externalities in education.
Identify the following situations as an example of a negative or a positive externality: You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. Your neighbor paints his house a hideous color. Investments in private education raise your countrys standard of living. Trash dumped upstream flows downstream right past your home. Your roommate is a smoker, but you are a nonsmoker.

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