To eliminate the inefficiency resulting from an external cost of production, the government can impose a tax on producers that is equal to the
A) MSB.
B) MC.
C) marginal external cost.
D) MSC.

Question

Quizplus · Accepted Answer

Imposing a tax equal to the marginal external cost internalizes the externality, aligning private costs with social costs and eliminating inefficiency.

To Eliminate the Inefficiency Resulting from an External Cost of Production