Use the following to answer question:
Figure 17.8
-(Figure 17.8) If the socially optimal quantity of the good is 200 pounds, there is a _____ externality, so the government should enact a _____ per pound to increase market efficiency.

Question

Use the following to answer question:
Figure 17.8 
-(Figure 17.8) If the socially optimal quantity of the good is 200 pounds, there is a _____ externality, so the government should enact a _____ per pound to increase market efficiency.

Quizplus · Accepted Answer

The question states that there is a negative externality, which means that the cost to society is greater than the private cost, so the market overproduces. To correct this, the government should enact a tax to increase the private cost to the socially optimal level. A $6 tax per pound would be appropriate, as it would shift the supply curve to the left until the equilibrium quantity is 200 pounds, which is the socially optimal quantity.

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