When producing a good creates pollution, an external cost, and the government imposes a tax equal to the marginal external cost, then
A) the amount of output moves farther away from the efficient amount.
B) transaction costs will be high.
C) the efficient amount of the good will be produced.
D) property rights must have already been established.

Question

Quizplus · Accepted Answer

When the government imposes a tax equal to the marginal external cost, it internalizes the externality, leading to the production of the efficient amount of the good.

When Producing a Good Creates Pollution, an External Cost, and the Government