When a negative externality exists in the production of a good,

Question

Quizplus · Accepted Answer

The most appropriate policy to correct a negative externality in production is to tax the production of that good, such as a carbon tax or a pollution tax. This would increase the cost of production for the firms, shifting the supply curve of the good to the left and reducing the quantity produced. The tax revenue can then be used to address the negative effects of the externality, such as investing in renewable energy sources or cleaning up pollution. A, B, D, and E are not appropriate choices as they do not directly address the negative externality in the production of the good.

When a Negative Externality Exists in the Production of a Good