An efficient tax for a product with detrimental externalities would equal

Question

Quizplus · Accepted Answer

The most efficient tax for a product with detrimental externalities would be an amount that equals the difference between the marginal social cost of producing the product and the marginal private cost of producing it. This is because the marginal social cost takes into account the negative effects of the product on third parties, while the marginal private cost only reflects the cost to the producer. By taxing the producer an amount equal to the difference between these two costs, the producer is incentivized to take into account the externalities and produce the product at a socially optimal level. Therefore, the correct answer is D, marginal social cost minus marginal private cost.

An Efficient Tax for a Product with Detrimental Externalities Would