When external costs are present and the government imposes a tax equal to the marginal external cost, then
A) efficiency can be achieved.
B) transaction costs will be high.
C) the marginal benefit of the external cost will fall.
D) property rights must have already been established.

Question

Quizplus · Accepted Answer

Imposing a tax equal to the marginal external cost internalizes the externality, aligning private costs with social costs and leading to an efficient market outcome.

When External Costs Are Present and the Government Imposes a Tax