-Refer to the diagram above.Taxing the production of this good by an amount equal to the external cost would
A) place the entire burden of the external cost on producers.
B) be ineffective because the external cost is not eliminated.
C) place the entire burden of the external cost on consumers.
D) not achieve an efficient solution.
E) divide the burden of the external cost between producers and consumers.

Question

-Refer to the diagram above.Taxing the production of this good by an amount equal to the external cost would
A) place the entire burden of the external cost on producers. 
B) be ineffective because the external cost is not eliminated. 
C) place the entire burden of the external cost on consumers. 
D) not achieve an efficient solution. 
E) divide the burden of the external cost between producers and consumers.

Quizplus · Accepted Answer

Taxing the production by the amount of the external cost internalizes the externality, meaning both producers and consumers share the burden, leading to a more efficient market outcome.

-Refer to the Diagram Above