Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050



Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Which of the following statements about corrective taxes is generally NOT true?

a. Economists prefer them to command-and-control regulation.

b. They raise government revenue.

c. They cause deadweight losses.

d. They reduce the quantity sold in a market.

To determine
Deadweight loss and corrective tax.


Option (c):

The statement “they reduce the deadweight loss” is not related to corrective tax. The corrective tax is used to reduce the negative externality in the society. The tax amount is equal to the external cost produced by any negative externality activity. Thus, option “c” is correct.     

Option (a):

Economists prefer corrective tax for regulating the negative externality. The corrective tax is imposed based on how much the external cost is created by the production of a commodity...

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