The government can _______________ change an inefficient market outcome (in the case where there is a negative externality)into an efficient outcome by imposing a tax on the activity that generates the negative externality.

Question

Quizplus · Accepted Answer

While a tax on the activity that generates the negative externality can potentially lead to an efficient outcome, it is not always guaranteed to do so. The effectiveness of the tax depends on various factors such as the size of the externality, the elasticity of supply and demand, and the ability of the taxed party to pass on the tax to consumers. Therefore, it is possible but not guaranteed to change an inefficient market outcome into an efficient one by imposing a tax on the activity that generates the negative externality.

The Government Can _______________ Change an Inefficient Market Outcome (In