Refer to the graph below. The tax illustrated in the above graph,that makes the marginal private cost equal to the marginal social cost,is appropriate for correcting
A) a positive externality.
B) a negative externality.
C) a monopoly.
D) a competitive equilibrium.
E) asymmetric information.

Question

Refer to the graph below.  The tax illustrated in the above graph,that makes the marginal private cost equal to the marginal social cost,is appropriate for correcting
A) a positive externality. 
B) a negative externality. 
C) a monopoly. 
D) a competitive equilibrium. 
E) asymmetric information.

Quizplus · Accepted Answer

The tax in the graph is appropriate for correcting a negative externality because it shifts the MPC curve upward to intersect the MSC curve, which reflects the true cost to society. This tax will increase the price consumers pay and reduce the quantity of the good consumed, leading to a reduction in the negative externality.

Refer to the Graph Below