Those opposed to fracking, a method of extracting natural gas through breaking up underground rocks with chemicals and water, warn that this method might pollute nearby sources of drinking water.
-If this pollution occurs, one way of reaching efficient production levels is by setting a Pigovian Tax. To achieve efficiency with this tax means that the tax must equal the
A) marginal social cost.
B) marginal private cost.
C) marginal private benefit.
D) marginal external cost.

Question

Quizplus · Accepted Answer

A Pigovian Tax is designed to correct the negative externalities of a market activity. To achieve efficiency, the tax should equal the marginal external cost, which is the cost imposed on third parties not involved in the transaction.

Those Opposed to Fracking, a Method of Extracting Natural Gas