When farmers raise hogs,there are a number of external costs.In particular,hogs generate methane gas.If the marginal external cost is $100 per hog and the government imposes a tax of $200 per hog,then at the equilibrium price and quantity of hogs:
A)too few hogs will be raised.
B)the price will be less than the marginal social cost.
C)the price will be less than the marginal social benefit.
D)the price will be less than the marginal cost to hog farmers.

Question

Quizplus · Accepted Answer

If the government imposes a tax of $200 per hog and the marginal external cost is only $100 per hog, then the tax will be higher than the actual cost, and as a result, farmers will be discouraged from raising hogs. This will lead to a decrease in supply and higher prices, causing a shortage of hogs. Therefore, too few hogs will be raised.

When Farmers Raise Hogs,there Are a Number of External Costs