Cigarettes are known to cause negative externalities.Which one of the following will help to reduce the consumption of cigarettes?
A) A subsidy paid to cigarette producers.
B) Compensation paid to the smokers who end up with lung cancer.
C) A special tax allowance for cigarette consumers.
D) A special tax imposed on the production of cigarettes.
E) Compensation paid to cigarette producers for the articles written about their product.

Question

Quizplus · Accepted Answer

A special tax imposed on the production of cigarettes will increase the price of cigarettes, making it more expensive for consumers to purchase. This will decrease the demand for cigarettes and reduce consumption. Additionally, the tax revenue can be used to compensate for the negative externalities caused by smoking, such as funding healthcare programs for those with smoking-related illnesses. Options A, B, C, and E are unlikely to reduce cigarette consumption and may even incentivize it.

Cigarettes Are Known to Cause Negative Externalities